IMF reviews Australia’s financial regulatory system

According to the IMF’s 2006 Financial System Stability Assessment of Australia, Australia’s financial regulatory and supervisory structure is sound. There is generally a high level of compliance by APRA and ASIC with international standards. Areas for further strengthening are the AML/CFT framework, the capacity of APRA and ASIC, and the framework for the resolution of failed financial institutions and crisis management.

IMF’s findings included:

  • The banking system, which holds approximately half of total financial systems assets, is sound, with high earnings, strong asset growth, and low levels of problem assets. Stress tests did not reveal near-term stability concerns, suggesting the banking system is likely to be resilient to adverse shocks.
  • The banking system, nevertheless, faces a number of vulnerabilities including (i) macroeconomic shocks; (ii) significant exposure to a highly leveraged household sector; (iii) significant dependence on wholesale funding; (iv) increased competitive pressure; and (v) overall lack of diversification.
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