'Four pillars' keeps banks safe: IMF
- From: AAP
- September 26, 2012
THE International Monetary Fund (IMF) believes Australia's "four pillars" policy governing the local banking sector may have protected the economy from international contagion during the global financial crisis (GFC).
An IMF analysis found the domestic banks of Canada, India and Malaysia also avoided the worst effects of the 2008-2009 GFC because they too had a relatively low degree of exposure to risks in the international banking sector.
It noted the regulatory regimes of Australia and Canada shared features resulting in less globally integrated banking systems.
"One important policy they have in common is the de facto prohibition of mergers among the major domestic banks," the IMF said as it released the analytical chapters of its Global Financial Stability Report due in October.
While the objective of Australia's policy was to maintain a competitive local market, it also prevented the banks from increasing in the size and lead to the creation of "national champions" that could compete with major global financial institutions.
Australia's "four pillars" prevents mergers or acquisitions between ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp, and hampers foreign bank takeovers.
The IMF analysis released in Washington on Tuesday (Wednesday AEST) also found Australia and Canada had limited foreign bank presence and low foreign claims compared with, for example, the eurozone.
All four economies - Australia, Canada, India and Malaysia - also had a strong domestic deposit base that supported local lending.
In a separate article, the IMF said Australia's financial sector grew rapidly over the past two decades but had since slowed to a sustainable pace, in line with income growth.
"The stable expansion of the financial sector has supported two decades of uninterrupted output growth," the Washington-based institution said.
It noted market regulator, the Australian Prudential Regulation Authority, took pride in its "intrusive" approach to financial supervision and was preparing to implement the international financial Basel III standards in 2013, well ahead of schedule.
"The intense supervisory approach has been broadly effective for Australia," the IMF said.
"That said ... what is successful in Australia may not necessarily be so elsewhere."