19

May



Costume financial regulators ASIC and APRA have to go

 

Recently, the federal government finished an inquiry into how we manage the monetary system. One of the question’s proposals was that we need a board of oversight over ASIC the customer defense regulator and APRA the bank regulator.

 

That proposal was ultimately dropped, doubtless with some push-back from the regulators. Developing a Financial Regulator Assessment Board was the query's only recommendation that the Abbott federal government rejected.

 

Our two financial regulators are like a clown automobile with 2 drivers, speeding down the highway.

 

Because of ASIC's staggeringly bad performance, and all the current banking and insurance scandals, there's now a call for more than a board of oversight, there are calls for a royal commission. That worked out well.

 

All the while a blowtorch has actually been held versus ASIC, and for factors that are both excellent, and that keep coming. But APRA has left scrutiny, when in fact it may be the unsung villain of the piece. Permit me to explain.

 

Capital stash

 

There is this thing called the "capital requirement". Capital is money that banks should stow away under the bed mattress, in case you-know-what meetings the fan. Banks dislike doing this, because money under the mattress is practically dead money. It cannot be invested, or earn regular profit.

 

The total up to be stashed under the bed mattress rely on the viewed quality of the assets. The higher the quality of an asset, the less money should be stashed.

 

Explosive evidence from 2 economists, David & Soos, was that scams is swarming among our banks: for something, they are fudging the numbers on credit applications to make borrowers look more credit worthy.

This would enable banks to minimize the amount of cash stashed under the mattress. The huge 4 banks have risk-weighted possessions of $1.55 trillion.

 

Accusations of book-cooking are not secrets. They have been aired prior to the Senate, therefore APRA is on notification.

 

Not a science

 

If you accept that the quantity of capital banks must retain is a clinical number, not an arbitrary one, then the fact that banks have taken part in such profound governance failures cooking the books may leave them under-capitalized.

 

If (or when) another international financial crisis strikes, our banks will be prone to collapse. If one bank falls, others follow suit, in a procedure called "contagion".

 

There's the small matter of the list of other governance failures including Commonwealth Bank's financial planners and insurance scandals and allegations of rate rigging at Westpac and ANZ.

 

APRA has had the power under the Banking Act (11CA (2) (e)) to select its own representatives to the boards of these companies a power it has had for 15 years, and which it can invoke if it detects severe governance failures.

 

Think how many times it has used it? No.

 

How much more is needed?

 

If the proof of dodgy dealings is inadequate, and the intensity too minor, then precisely how much more evidence does APRA require, and just how much worse must it get? Financial coordinators have been founded guilty of creating trademarks.

 

CBA has actually admitted to the wholesale rejection of valid insurance coverage claims. It was even captured spying on its critics consisting of a federal MP. Westpac and ANZ have a "prima facie" case to address on rigging rates. IOOF personnel were participated in front running.

 

Even ASIC's chairman, Greg Medcraft, has actually admitted that Australia had actually ended up being a paradise for clerical criminal activity.

 

The public has had a gutful. And if laws like the Banking Act remain unenforced, is it any wonder anger levels have become incandescent?

 

Singapore option

 

The option is a regulator like the Monetary Authority of Singapore (MAS). It has a credibility for being so no-nonsense that one senior lender in Singapore described what MAS does to misbehaving banks in language that cannot be repeated here.

 

Obviously our regulators' culture has to be scrutinized. We need to imbue them with some foundation, not simply to walk around like they remain in authorities fancy-dress, however to really act like a police officer on the beat.

 

And it's not only MAS from whom we can draw inspiration. The ACCC is extensively considered extremely efficient and no-nonsense.

 

Much of that is credit to Alan Fels, former chairman of the ACCC, who was a regulator's titan. He went on record in the Financial Review recently to state, if he was running ASIC, he would be breaking the whip.

The timidity of our regulators, and their "nothing-to-see-here" method can be summed up with this analogy: our two monetary regulators are like a clown vehicle with 2 motorists, speeding down the highway. One motorist ASIC is lost consciousness at the wheel.

 

The other motorist APRA chooses not to see the road. The federal government won't use the brakes (a royal commission). Exactly what's most likely to happen next?

 

 

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