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Trust in financial system is 'broken'

Posted by on in Political Blindness
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A SENIOR Reserve Bank official painted a depressing picture of the global financial system last night, arguing distrust among banks, borrowers and governments arising out of the financial crisis had intensified, hobbling efforts to revive economic growth and precipitating costly but necessary increases in regulation.

In unusually colourful remarks delivered in a speech in Melbourne, Reserve Bank assistant governor Guy Debelle said years of "lazy trust", "deficient" regulation and "seemingly benign growth" in the world economy before the GFC had fanned excessive risk-taking, which ceased suddenly in 2007 when it became clear financial markets had been guilty of a "major mis-assessment of risk" for years.

Dr Debelle, head of the RBA's financial markets division, argued the level of distrust in the financial system globally was worse now than in 2009 and said restoring trust would be a very lengthy process.

His remarks followed a gloomy outlook from International Monetary Fund chief Christine Lagarde, who warned in a separate speech in Washington, DC, that it would take years to return for pre-crisis levels of debt for many countries.

Adam Creighton

"We should not delude ourselves about how painful this is going to be," she warned, upbraiding policymakers for taking too long to implement tough reforms.

"We need decision-makers to be real action-takers," she said, referring to fiscal and monetary efforts to revive growth and reduce debt.

Dr Debelle, meanwhile, pointed out a key difficulty. "An important transmission channel for monetary policy to take effect has almost always been a pick-up in lending to businesses and households," he said. "That is clearly not happening in many countries."

Dr DeBelle also suggested the profitability of banks, including those in Australia, warranted further scrutiny.

"If financial institutions are perceived to be earning too high a rate of profitability, particularly if the institution is enjoying a degree of support from the public sector, that too will impede the restoration of trust."

He said society needed to consider what the "safe degree of leverage" for banks was: "The financial sector enjoys a level of support (from taxpayers) that is not present for other sectors."

On Europe, Debelle said "we are witnessing a balkanisation of the financial system", arguing the emergence of "redenomination risk" -- the risk the currency of an asset may suddenly change and fall in value if a government leaves the euro area -- was further undermining trust in Europe.

Dr Debelle said supervision of banks, here and globally, had tightened considerably since the GFC, although benefits outweighed the costs. "The light touch is no longer acceptable," he said, pointing out, however, that Australia had been an exception to the rule. "APRA (the Australian Prudential Regulation Authority) has long exercised intensive scrutiny over the banks is supervises".

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  • doyla66
    doyla66 Wednesday, 26 September 2012

    Dr's deeply flawed diagnosis of APRA "has long exercised intensive scrutiny over the banks is(sic) supervises".. please!!!

    > will someone inform the good Dr, that "apraaaahaha" stands for "apathetic care" & preferred [applied] methodology is best described as "expectant treatment" = APRA apathetically 'anticipates patient to correct itself' - without any actual light 'hands-on' medicinal intervention required, vis a vis "intensive [scrutiny] care" - as patient goes rabid in 'after[GFC]life', requiring radical corrective surgery as it metastasises.

    Boy oh boy, have AUS regulators et al totally 'hood-winked' those 'know it alls' global - academics of 'theory'; instead they may be prudent to seek out BFCSA to ascertain the real 'state of play' [1min to midnight] AUS banking scenario premised on 'rea & correct' empirical studies carried out by learned, [AUS Bankster PHd] BFCSA members!

    Royal Commission ASAP

  • doyla66
    doyla66 Wednesday, 26 September 2012

    There is virtually NO regulation of banks or lenders. THE REGULATORS ARE COMPLICIT IN THE FRAUDULENT ACTIVITIES OF THE BANKS. They then LIE,LIE,LIE to Parliament to protect their jobs & funding.

  • doyla66
    doyla66 Wednesday, 26 September 2012

    APRA may "scrutinise" ("look at") what the banks are doing but what did they do next? Have a cup of tea, having fulfilled their job description? If it's not in the job description it won't get done. Even if it is on the list a directive from the Minister can change the priorities any time despite anything your job description includes. And for goodness sakes don't take any initiative off your own bat or try to be a star! Just work within the dotted lines ... which keep moving ... have a nice day :D

    "The financial sector enjoys a level of support (from taxpayers) that is not present for other sectors."
    How true! Why?
    1. Because they whinge, lobby and threaten any time someone wants to "move their cheese"?
    2. Because taxpayer groups are either ineffective in lobbying for their rights or they accept the mantra that we have to look after our banks and keep them strong for all our sakes?
    3. Because they sponsor football and other sporting teams?
    4. Because the Govt suffers from the backbone and imagination to think beyond the almighty Banks?
    5. Because the Govt is inexperienced in dealings correctly with basic financial management and gets snowed by all the financial claptrap and soothsayers?
    6. Because the Govt thought that was what Australians wanted?
    7. Because the Govt was too busy doing other things or elsewhere?
    8. Because of the GFC? (why not - everyone blames everything on the GFC which we didn't have...)
    9. Because no one wants to admit they are wrong, fess up to their inadequacy (especially with a hung parliament) and seek help to change direction?
    10. Because no one mentioned it was a problem before?
    11. Because green politics, global thinking and impressing the IMF and the UN were more important than domestic issues? (and still are, ipso facto)
    12. Because the US and EU had the problem and we didn't?
    13. Because there are more taxpayers than Banks so banks are an endangered species which are supported through the slush fund called Treasury?
    14. Because ... (invent your own excuses for Govt propping up the most massively successful private sector Australian Banks, wealthier than Europe, at the expense of Mum and Dad corner shop owners)

    .... while Lifeline often can't answer the phone or Ozcare visit the sick and the elderly at home ....

    Let's get ALL the skeletons out of the cupboard and find out who is behind this massive bank scam!


    ....but hurry before they pack their bags and escape!

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