Prudent Behaviour in Good Times

I am pleased to be speaking today to the AIBF’s Annual Industry Forum, with its provocative theme of “Thought Leadership”. I am also delighted to be sharing this session with the Governors of the Reserve Bank of Australia and the Reserve Bank of New Zealand, which have ultimate responsibility for safeguarding the stability of the financial system on either side of the Tasman.

Having taken on the Chairmanship of APRA after a long career in the Reserve Bank, I am learning at first hand the similarities and essential differences between these two types of institution. The core similarity is simple: neither institution can ever stop worrying!

In fact, our worrying steps up in intensity when economic times are good and nobody else seems to be worrying. Central banks and prudential regulators play important complementary roles in the pursuit of financial stability. Central banks lay key foundations in establishing a low inflation environment and a safe and robust payments system. They are the quintessential macroeconomic institution, though they take considerable notice of specific industry developments. Prudential regulators also lay a key foundation in the form of a sound and effective framework of prudential supervision. Ours is essentially a microeconomic task; our focus is largely at the firm and industry level, although we must have regard to the overall state of the economy and to
emerging pressure points.

See full Speech, in pdf format.