Post Gfc Developments in the Australian Financial Sector

Developments in the Australian Financial Section Abstract This research report examines the structure of the Australian financial industry, its legal and regulatory framework and the current challenges faced by Australian banks. The report finds that the Australian financial sector has a comparatively strong regulatory structure; however, the effect of the Global Financial Crisis of the late 2000s has significantly lowered the growth rate the banks’ assets and posed other challenges to the banks. The report concludes that the collective challenges currently faced by Australian banks may, given the fragile global financial climate, combine to affect the profitability and overall stability of Australian banks if not properly addressed. This report is of the view that, in resolving these challenges, banks should fix their lending rates to reflect their cost of funding independent of the cash rate and adopt measures to improve efficiency in their management. Introduction The Australian financial sector is generally perceived as stable and well-regulated, and although it fared relatively well through the Financial Crises of the late-2000s, there has been noteworthy changes in its structure, regulation and the nature of threats facing its banks. This report explores the major challenges confronting Australian banks by analysing the causes and various perspectives on the issue. Firstly, the structure of Australian financial intuitions is analysed in terms of their asset size over a seven year period from December 2005 to December 2011. Secondly, the major laws and bodies governing the Australian financial industry are examined with particular focus on the liquidity and capital adequacy requirements of banks. Lastly, the report looks at the major challenges currently facing Australian banks which it identifies as: high cost of funding and exchange rate; lower credit and

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deposit growth; mounting political and public pressure to cut interest rates on loans; and