Speaking at a Financial Services Council (FSC)/Deloitte lunch in Sydney on Friday, FSC chief executive John Brogden pointed out that both of the previous reviews of the sector – Campbell in 1979 and the original Wallis inquiry in 1996 – were proactive in their scope.
But Mr Brogden pointed out there is an element to which the review, overseen by Treasurer Joe Hockey, will be reactive – particularly the draft terms of reference the treasurer released when he was on the opposition benches.
Those terms of reference fall into three categories, said Mr Brogden: what happened during the global financial crisis (GFC), how Australia has recovered since the GFC and what can be done to improve the sector (and export it).
“I always think the mistake that governments make with inquiries is that they overreact to the last mistake they made,” he said.
“I hope it’s very forward looking. I want it to be very focused on the opportunities for exporting financial services out of Australia,” said Mr Brogden.
BT Financial chief executive Brad Cooper said while systemic risk needed to be managed, the new government needs to be careful not to “overreact”.
“It would just standardise everything, and you would squash out the innovation that is needed. The benefit of having the inquiry now is to stop those overreactions,” said Mr Cooper.
Deloitte Access Economics partner Professor Ian Harper, who was involved in the original Wallis inquiry, said the focus should be on the lack of innovation in the sector.
While stability within the system is important, it should not be the only concern of the inquiry, he said.
“I’m clearly not arguing in favour of financial disasters … but there’s a big gap between having absolutely no risk – having everything nailed down – and taking sensible risks, which is what the financial system is designed to do,” said Mr Harper.
“The bigger risk in my book is that we underplay that risk taking and we pay the price in economic development over the next 20 to 30 years,” he said.
With the end of the mining boom, the dynamism in the Australian economy needs to come from small business – and that involves a particular type of financing that involves “a lot of risk”, said Mr Harper.
“The banking system in the meantime is being told to get back into its box by the international regulators – and the domestic regulators are following suit,” he said.
The question is whether the Australian banking or superannuation systems are up to the task, said Mr Harper – or whether foreign direct investment will fill the gap.
“Those are the issues the inquiry needs to drill into. It’s about Australia’s economic development,” he said.
The terms of reference for the inquiry are expected to be released within the next few weeks.
