Question

Regulation on the Australian banking industry includes the Australian Prudential Regulation Authority (APRA); the Australian Securities and Investments Commission (ASIC); the Reserve Bank of Australia (RBA); and the Australian Treasury. Explain how these regulatory authorities affect the four major banks’ strategies to take risky business such as lending to highly leveraged firms and/or investing on risky financial assets domestically and internationally.

Answer 1

Regulations on Austrian banking industry can be classified in to ASIC, APRA, RBA, and Austrian treasury etc. The responsibility of ASIC to protect consumers and the integrity of the market. At the same time to regulate investment banks and financial companies which are exempted from APRA. APRA provides licensing and monitoring the deposit receiving institutions like LIC, GIC, mutual funds etc. The main function of RBA is to set up appropriate monetary policies.

The regulation through the above authorities tries to protect banking industries from financial crisis. In, 2008 world experience great recession. The reason was the improper function of banking industries. They have lent without any colatora l securities.it adversely affects the capital adequacy and their profit in the future. So these authorities introduce new capital adequacy norms based on BASEL II norms.

As a result with limited control, banks can take risky business such as lending money to highly leverage firms and at the same time invest huge amount in the capital market domestically and internationally . If there is no regulation, lending amount may become NPA (Non performing asset) it affects their further activities. Eg : kingfisher airline . So such regulatory measures are essential to protect banking industries in Australia

On the other hand with the regulatory guidelines, banking institutions can invest huge amount in portfolio assets and shares domestically and internationally.. Which reduces risk elements and can earn profit with invisible securities from these regulators.