Week 11 Lecture - Week 11. Regulation of Financial...

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Week 11. Regulation of Financial Institutions 1203AFE Money, Banking and Finance Chapter 15 Monday 13 October 2008
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Objectives The purpose of this lecture is to help you to: Discuss the reasons that banks are regulated Explain the prudential supervision framework in Australia and APRA’s supervision methodology Explain the requirements of the Australian Prudential statements Explain the purpose of the Uniform Consumer Credit Code and how it operates in practice Explain the role of the Banking and Financial Services Ombudsman (BFSO) and its dispute resolution process
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Reasons for Regulation Financial institutions are regulated because they provide goods and services that the economy needs to function well. There is a social costs of bank failures The money supply is reduced Disrupt borrowing relationships Create contagion between financial institutions Economic growth is slowed down
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Bank Failures Because the costs of a bank failure is high, regulation has focussed on reducing the risk of this occurrence. Banks can fail because of: illiquidity or inadequate capital. Failure can be prevented by having a lender of last resort .
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Lessons From Past Bank Failures Ensuring that banks have sufficient liquidity in a crisis is of the utmost importance. Macro- and micro-economic conditions put pressure on the financial position of financial institutions Fraud, embezzlement and poor management can lead to bank failures.
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The Prudential Supervision Framework The regulators Legislation Prudential Statements Supervisory Process 3 Bodies 5 Acts APS PAIRS SOARS
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Regulators There are three main regulatory bodies in Australia: The RBA : responsible for systemic stability ASIC : responsible for consumer protection and market integrity APRA : responsible for prudential regulation of ADIs, insurance companies and superannuation entities. Other important players: Australian Treasury, ACCC, BFSO, SCOCA
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Legislation Five key pieces of legislation are relevant to the operation of financial institutions in Australia: Reserve Bank Act 1959 Banking Act 1959 Financial Sector (Shareholdings) Act 1998 Financial Sector (Collection of Data) Act 2001 Financial Services Reform Act 2001
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Week 11 Lecture - Week 11. Regulation of Financial...

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