Doing It the Australian Way, ‘Twin Peaks’ and the Pitfalls In Between

by Dr. Andrew D. Schmulow

The CLS Blue Sky Blog, edited by Reynolds Holding, published by Columbia Law School, 2016.

The ‘Twin Peaks’ method of financial system regulation is widely regarded as the leading model for the regulation of a country’s financial system. Australia was the first to adopt the model in 1997, has been using it the longest, and fared the best among the G20 during the global financial crisis. As a result, Australia’s Twin Peaks model is being exported around the globe.

The model was first proposed by an Englishman, Dr Michael Taylor, in 1994. So-called because it proposes two, specialist, mega-regulators: one charged with the maintenance of financial system stability (ensuring banks don’t end-up bankrupt), and the other with market conduct and consumer protection (ensuring banks don’t make their customers bankrupt). And yes, Taylor did have David Lynch’s mini-series in mind when, somewhat tongue in cheek, he named it ‘Twin Peaks’. In Australia, the system stability regulator takes the form of the Australian Prudential Regulation Authority (APRA), and the market conduct and consumer protection peak takes the form of the Australian Securities and Investments Commission (ASIC).

Australia’s Federal Reserve, the Reserve Bank of Australia, has overlapping responsibility for financial system stability, and remains the lender of last resort. So in Australia’s case the ‘Twin Peaks’ moniker is a misnomer. It should more correctly be called ‘Three Peaks’. To date, other countries that have adopted the model include the UK, the Netherlands, New Zealand, Qatar and South Africa. Those that have signalled a desire to adopt it include South Korea, Hong Kong and the federal level of the Eurozone.