Topic 2 Monetary Authorities

Front 1

What are the major regulatory bodies in the Australian Financial System and what are their main roles?

Back 1

The RBA, Australias Central Bank, is responsible for monetary policy, systemic stability and the payment systems.

APRA is responsible for prudential supervision of financial institutions including banks, credit Unions, building societies, and insurance and superannuation companies.

ASIC is responsible for enforcement of company and financial services laws, with the aim of protecting consumers, investors and creditors. this includes the responsibility for licensing and monitoring financial markets and advisors, and monitoring the disclosure and conduct of Australian companies and financial service providers.

Front 2

Outline the key functions and responsibilities of the RBA

Back 2

Primary Functions are;
- the determination and implementation of monetary policy
- issuing Australian Currency notes
- Overseeing the payments system and facilitating its operation
-acting as the governments banker and issuing securities on its behalf
- Issuing and providing the market for commonwealth treasury securities
- managing financial system liquidity and the government's holding of foreign exchange

The primary statutory responsibilities of the RBA are now emodies in the Reserve Bank Act 10(2) and are often referred to as the "RBA's Charter"

Front 3

Outline APRA's role in the Australian Financial System.

Back 3

APRA's mission is 'to establish and enforce prudential standards and practices designed to ensure that, under all reasonable circumstances, financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system.'

APRAS specific functions include:

- The development and implementation of prudential regulation that supervised entities will have to abide by
- monitoring regulated entities to ensure that they are complying with the relevant legislation and prudential policies. This includes powers to force institutions to comply and remedy any non-compliance.

Advising the government on the development of regulation and legislation affecting regulated institutions and the financial markets in which they operate.

Front 4

Outline the broad responsibilities of ASIC in the regulation of financial markets.

Back 4

It is charged with the responsibility for enforcing company and financial services laws to protect consumers, investors and creditors.
The specific responsibilities of ASIC are formalised in the Australian Securities and investments commission Act 2001. this act gives ASIC a broad role in terms of applying the law, ensuring market participants are fully informed and improving the performance of the financial system and the entities within it

Front 5

Why is there a debate over the role that the central banks should play?

Back 5

This debate often centres on the issue of the degree of independence of central banks. some argue that central banks ar emore effective when they are independent of government, while others point out that the government (assuming it has been democratically elected) acts in the interests of the people, and therefore should have a high degree of control of their central bank. central Banks around the world do not perform the same functions, nor do they have the same degree of independence from government.

Front 6

What is the 3-6-3 rule? what led to this situation and why is it a motivator for change?

Back 6

The 3-6-3 rule is where banks paid three percent on deposits, charged six percent on loans and closed the branch at 3pm.
This was implemented through interest rate controls enforced through regulation, which aimed to provide stability and certainty in the finance markets. in practice this resulted in no price-based competition between institutions in terms of attracting funds and limited their ability to lend, hence exposing them to little risk. In response, the regulators liberalised the banking systems to allow price competition between institutions by removing interest rate controls for example.