Thought leaders in the financial industry have met in Sydney for the 23rd
Australasian Finance and Banking Conference. This high-level conference, organised by the Australian School of Business, discussed the challenges affecting the banking and finance industries in the Asia Pacific region.
Professor Fariborz Moshirian, the conference convener, says 290 delegates from 30 countries are participating in the conference. "Everyone at the conference is deeply involved in the financial markets or the banking industry. People here want to know what is happening following the Global Financial Crisis, the impact on credit, and the change in capital flows."
A forum on the first morning led with themes to be developed in breakout workshops at the conference. The Global and Regional (Asia Pacific) Financial Markets & Regulation Forum focused on and discuss the challenges and regulation facing the financial markets in Australasia.
Dr Guy Debelle, Assistant Governor of the Reserve Bank, gave his analysis of Bank Funding and Capital Flows in the wake of the GFC. He said "The financial crisis has had a marked impact on capital flows globally. The funding of the Australian banking system has changed quite markedly, as it shifted from more deposit funding and to more long term wholesale funding and away from the short term. The cost of that funding has increased quite significantly." He added "Growth of credit in the banking system will be slower than has been the case for a number of years in this country."
The Nobel Laureate, Professor Robert Engle from New York University, developed this further with an in-depth drill down and mathematical model of how in the wake of the GFC the Risk Rankings of banks rapidly changed. He then explained that the assessment of risk was often based on what would happen if an institution failed, and how much risk society would be happy with. "How much do we need to reduce the risk taking of these institutions without killing them? We don’t want to make them unable to compete and unable to function."
Professor Robert Engle then compared banking to a chimp in a tree catching flies. He said "If there are many chimps, and the result of falling is just a bruise, we probably wouldn’t consider regulation. But if it’s the last chimp alive on the planet, and a fall will kill it, society would immediately want to bind that chimp in red tape. It’s the same with banks."
Dr Ken Henry AC, Secretary to the Treasury, gave his reading of the current challenges in the post global financial crisis environment. "Australia’s banking industry has emerged from the Global Financial Crisis in a comparatively strong position. Its reputation globally has been immense. But the industry and policy makers alike face distinct challenges particularly due to the cost of funding relating to competitive pressures in the industry."
He argued that increasing concentration in the home loan market was not conclusive evidence of reduced competition, adding "Nor is the fact of interest rates on home loan products increasing by amounts in excess of movements in the RBA's cash rate. The repricing of home loans and other lending products could simply be a response to changes in funding costs and a reassessment of risk."
AGSM Scholar, Professor, Director of the Institute of Global Finance
School of Banking & Finance