Financial Institutions and Markets
2.1 Outline the roles of the various monetary authorities that regulate the Australian financial system. What is the role of Council of Financial Regulators?
In Australia, the role of monetary authorities is split between three independent statutory agencies with specific responsibilities in the Australian financial sector:
1. The Reserve Bank of Australia (RBA), Australia’s central bank, is responsible for monetary policy, systemic stability and the payments system;
2. The Australian Prudential Regulation Authority (APRA) is responsible for prudential supervision of financial institutions including banks, credit unions, building societies, and insurance and superannuation companies.
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As a result the regulatory system in many regions of the world (particularly the US and UK) were/are subject to significant reviews.
In terms of Australia, there are a number of reasons why there was a lesser impact that other developed countries. These include:
• A small system characterised by a small number of large institutions that were well capitalised and more closely monitored • Minimal impact on underlying mortgage assets which placed less pressure on loan portfolios, largely due to under supply of housing and a growing population • An export led economy (in relation to minerals) that had only a comparatively short slow down period • Government action to guarantee deposits and stimulate the economy
2.7 Outline how the Australian payments system operates. Why is it important for this system to be efficient and reliable?
• The payments system is the mechanism by which the funds are transferred from one party to another to settle these transactions. The payments system is the mechanism that allows consumers, businesses and other financial market participants to transfer funds to one another to settle these transactions. An efficient and reliable payments system is therefore a key ingredient to maintaining a stable and effective financial system.
• The Australian payments system handles transactions in accordance with their size, ie whether they are