This paper describes the institutional and functional changes that have occurred in Australia's system of prudential supervision as a result of the recommendations put forward by the final report of the Financial System Inquiry chaired by Stanley Wallis. The previous regulatory framework was organised around institution type, with separate agencies regulationg different classes of institutions. The new regulatory framework distinguishes regulatory agencies by the type of market failure that they are designed to address. The decision to reform is explained as an adjustment in the response to the influences of technological and demographic trends and other regulatory reforms that have been driving change in the Australian financial system. Focus is on the role of the Australian Prudential Regulation Authority (APRA), the regulatory agency responsible for prudential supervision. The objectives of APRA are analysed in detail an d the powers and approach used by APRA to achieve these objectives are described.
APRA; Prudential Supervision; Wallis Inquiry; Information Assymetry; Market Failure
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