Supervising Financial Institutions and Conglomerates
Graeme Thompson and Brian Gray
The aim of this paper is to consider some of the issues associated with risk and capital management from the perspective of a financial supervisor. The paper covers three main areas. Section 2 examines the changing face of prudential regulation in Australia. The objective is not to promote the Australian Prudential Regulation Authority (APRA) as Australia's new single prudential regulator, but rather to draw out the obvious point that financial institutions operate within a regulatory environment that has an important bearing on the operations and activities of those institutions. A good regulatory framework can help, and a bad one hinder, the performance of individual financial institutions and the financial system as a whole. A key factor driving changes in regulatory arrangements, both in Australia and in many other countries, is the emergence of financial firms that provide a range of financial services, including banking and insurance products, through a variety of different mechanisms. Without question, the role played by these firms will continue to increase in importance. In this light, Section 3 considers some of the challenges that the growth of financial conglomerates poses for regulators and discusses some of the alternatives available to APRA in addressing many of these challenges. In the preceding papers of this Volume, much has been said about the management of capital in different types of financial institution and how individual financial institutions are assessing and measuring their risks. Accordingly, Section 4 provides some broader comments on the trends in risk and capital management that have emerged in the Australian financial system over recent years. The final Section of the paper considers some of the issues that these developments have raised, as well as the problems that regulators may need to address in the not-too-distant future.
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