by Dr. Andrew D. Schmulow

published electronically in The Interpreter, 1 March 2016.

It is little known outside financial circles, but Australia is enjoying some success on the global stage as a policy exemplar.

Australia’s model for the regulation of the financial system – the Twin Peaks model – is being emulated world-wide. So-called because the model is characterized by two equal and independent peaks: the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). Because Australia fared relatively well during the GFC and because our regulatory model has been credited with much of our success, a number of other countries have adopted the model (the UK, New Zealand, South Africa) or have signaled a desire to adopt it (South Korea, Hong Kong, and the federal level of the EU).

Under the Twin Peaks model, one peak is responsible for financial system stability (in our case, APRA) while the other (ASIC) is responsible for good market conduct and consumer protection. Within this system the Reserve Bank remains partly responsible for financial system stability, and remains the lender of last resort. So in fact, the model is a misnomer. It is in fact more correctly called the Triple Peak model.

by Dr. Andrew D. Schmulow

The Conversation, (2018), published electronically.

South Africa has started implementing a new regulatory regime for the financial sector. Known as Twin Peaks, the approach was first adopted in Australia in 1998. South Africa has become the eighth country to adopt the model.

Under Twin Peaks two regulators are established. One is charged with maintaining the stability of the financial system – called prudential regulation; the other is responsible for market conduct and consumer protection – what the South African authorities have neatly abbreviated to calling the “good conduct” peak.

The new approach is designed to address weaknesses in the other models commonly used to regulate banks and the financial services sector. Prior to adopting Twin Peaks South Africa used the sectoral model – that regulated banks separately from other financial firms like insurers. That model’s been replaced because it didn’t address the fact that institutions from different sectors often merge. This is particularly true of banks and insurers (so-called bancassurance).

This article first appeared in The Conversation. Also published at BizCommunity and Middle East North Africa Financial Network, Inc. (MENAFN).

by Dr. Andrew D. Schmulow

Business Day, South Africa, 2015.

THE adoption of “twin peaks” in SA is arguably the most important raft of financial system re forms since the Union left the gold standard in 1932. Originally proposed by an English man, Michael Taylor, this system was first adopted by Australia in 1998. It consists (in Australia) of the Reserve Bank of Australia (the lender of last re sort), the Australian Prudential Regulation Authority (Apra, the guardian of financial system stability), and the Australian Securities and Investment Commission (Asic, the market conduct and consumer protection agency).

Also published at BD Live and Global Advisors.

by Dr. Andrew D. Schmulow

The Conversation, (2016), published electronically.

Banks are worried. Their employees have engaged in practices that they don’t want aired, so they’re pushing back, writes the UWA’s Andrew Schmulow (via The Conversation).

THERE ARE cultural and ethical malpractices prevalent in Australian banks which our regulations do not address and which our regulators have struggled to contain. Those malpractices appear to be spreading, and our banks have failed to act meaningfully. The potential effects can be dire, so we need to find solutions. The Financial System Inquiry failed to address the problem. A royal commission would.

It’s important to remember how the global financial crisis started out. It began with the subprime disaster: a large industry developed around writing dodgy loans, sold using pressurecooker predatory lending, by unscrupulous lenders — none more so than Bank of America’s Countrywide Financial.

When that was not enough, banks, including Bank of America, engaged in document fraud on an industrial scale (something CommInsure employees dabbled in too).

The point is, dodgy dealings and an unethical culture in the banking system can create catastrophic, national and international problems.

This article first appeared at The Conversation. Also published at Independent Australia and Econotimes.

by Dr. Andrew D. Schmulow

The Conversation, (2015), published electronically.

The closer one looks at the government’s recent decision to levy a deposit tax against Australia’s Big Four banks, the more it seems like a revenue grab. Nothing more, nothing less.

An inspection of the legislation reveals that in the event of the failure of an Australian bank, there is no need for a levy to fund a depositor bailout. That means this proposal is not a deposit levy. It is simply another tax, with little to do with protecting depositors in the event of a bank failure.

Three crucial factors substantiate this assertion: the Banking Act, the levels of retained capital, and hypothecation (the practice of pledging collateral against debt).

We’ll explain why.