In its submission to the Financial System Inquiry, NAB argued the absence of these support mechanisms, including access to liquidity from the central bank, strong prudential regulation and well-capitalised balance sheets, is highly problematic during volatile economic conditions.
“In periods of extreme stress, such as the GFC, the withdrawal of funding can be rapid and disorderly,” the submission stated.
NAB believes regulators should be permitted to monitor or restrict the activities of non-prudentially-regulated organisations if the regulator believes these organisations present a threat to the financial system.
“This could be achieved by granting the RBA authority to designate that an entity should fall under APRA’s supervisory mandate,” NAB suggested in the submission.
NAB also argued the focus of financial sector regulation should not be solely on the regulated banking sector since systemic risk will only be reduced with a consideration of the risks inherent in the shadow banking sector.
“Similarly, imposing excessive restrictions on the activities of the regulated banking sector simply creates arbitrage opportunities that see risks move into the shadow banking sector,” said NAB.
The bank said recent regulatory change has already been a significant burden, with NAB's own regulatory and compliance spending increasing by 250 per cent in the past three years.
This regulatory burden was the result of “requirements based on process rather than outcome, tight and concurrent timelines for compliance and ongoing uncertainty post the change of government”, the bank said, noting there were over 60 regulatory changes in the 24 months to March 2014.
“A calendar of recent major regulatory change highlights that the financial system has experienced concurrent and uncoordinated regulatory change in Australia, creating the potential for increased operational and compliance risk at firm and industry level,” NAB stated.
