Financial Crisis isn't over yet - expert warns

Article Category: Demographics

By , 2 March 2010

Australia cannot continue to rely on its place in Asia to dodge the fall-out from the global financial crisis, a leading foreign regulator has warned.

The sovereign debt crisis enveloping the Mediterranean was set to spread, said Hans Hoogervorst, chairman of Dutch securities regulator the Netherlands Authority for the Financial Markets.

"I don't think that Asia or China can completely compensate for the rest of the world," Mr Hoogervorst told the Australian Securities and Investments Commission's Summer School conference in Melbourne yesterday.

"Don't become complacent."

Mr Hoogervorst slammed the Basel process, which sets international requirements for bank capital, saying the process was politicised and banks were "pushing back" against tougher regulation. "The lobbying is indirect but intense," he said.

Dutch banks had complied with Basel II rules but collapsed and had to be bailed out, he said.

"The credit crisis has made it clear that the prudential standards known as the Basel protocols were grossly inadequate," he said.

Mr Hoogervorst said while Basel set minimum capital ratios of about 10 per cent, the way they were calculated concealed actual capital ratios of about 2 per cent.

"The conclusion seems justified that the Basel criteria were not much more reliable than the AAA ratings of the much-vilified ratings agencies."

He said Australia had been well served by the twin peaks model of regulation, which splits oversight between the securities regulator ASIC and the bank regulator the Australian Prudential Regulation Authority.

But the model was no guarantee of success, he said. "You were very lucky to be very close to Asia and very far away from the US. But I would say it was more competence than luck.

"Please continue to be more conservative than the rest of the world."

Mr Hoogervorst said Australia needed to "prepare for a very different economic time, which you will not be able to continue to avoid".

Economies in Northern Europe and the US were going the way of debt-stricken Italy, "which they used to mock", he said.