Law of Financial Institutions

Law of Financial Institutions

Answer 1

Introduction

Australia is one of the best examples of economic growth, driven at first by its trade relationship with Britain. The country has evolved from an agricultural and mining system into a new era tertiary services. At the same time it has diversified and modernized, with low interest rates and significant changes in the labor system.

This framework has meant that Australia is characterized by a strong banking system highly effective and efficient, which has abandoned the supremacy of commercial banks in this area to modernize and make way for a diversified system that includes commercial banking, trust, investment, estate and mutual credit. Property companies, life insurance companies, pension plans, construction companies play an important role in this system.

The entire system is monitored by a central bank, The Reserve Bank, in which state and private banks have contact, but not fully under their authority. In recent years, federal and state governments have proceeded with the privatization of its shares in the bank. All this has made Australia one of the 10 world economic powers, from a protectionist economy to a competitive economy. The major Australian banks, called "big four" commercial banks are Commonwealth Bank, National Australian Bank, Westpac, Australian and New Zealand Bank.

Discussion

The current crisis certainly succeeds in many others: for twenty years, no fewer than nine crises - one every two years - more or less local and diverse origins and consequences, but this time the crisis is global banking system was at the heart of difficulties. However, it is lung economic activity, funding, belt transmission of monetary policy and to such securities, any malfunction is of a serious nature because it endangers the trust agents economic, disrupts their behavior and can have very for heavy activity and employment. It is because of this systemic risk long underestimated, as public authorities, when they realized they were the only bulwark to stem a financial panic everywhere have reacted with vigor and strength.

This crisis is the result of a deliberate set of behaviors of the actors. It is a crisis of a system which has proved to excess of financial activities: the transfer of risk to the lender diversified counterparties. The market economy is, in principle, in favor of development, competition, deregulation. However, the banking system is it subject to strict prudential rules that limit the growth of its therefore balance its activities in particular assembler and distributor of credits. Outcomes to increase the lending capacity of the banking system therefore is to do credit to others who can escape these forced either to transfer the risk. This transfer of credit is the technique called securitization. Born in the 1970s, it allows transform a bank debt, which is sold to a financial institution (a Investment Bank), a title that can be traded. Since the 1980s, securitization involves all the credits they are mortgage or not. To take full advantage of this technique of securitization, financial innovation has naturally created products applied credit, Collateralized Debt Obligations ...