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Financial Regulation (Monetary Authorities (RBA: Reserve Bank of Australia…

- - - - Determination and implementation of monetary policy
      - Issuing Australian currency notes
      - Overseeing the payments system
      - Government banker
      - Issuing and providing the market for treasury securities
      - Managing financial system liquidity
      - Cost of debt in the economy
    - - Inflation
        
        With ^ demand goods & services, inflation ^
        
        With v demand goods & services, inflation v
        
        Maintain target band of 2-3%
        
        Target band regulation
        
        Too much inflation= undesirable, economy overheating
        
        Too little inflation=undesirable, economy weakening
        
        ^inflation= v purchasing power
        
        Real Rate of Return= Nominal Rate- Inflation Rate
    - - What
        
        Control over the supply of money
        
        To affect the behaviour of borrowers and lenders
        
        That promotes price stability, economic stability and growth through inflation
      - Expansionary
        
        Increasing money supply
      - Contractionary
        
        Decreasing money supply
  - - - Insurance companies
      - Banks and other ADIs
      - Superannuation Companies
    - - Prudential regulation
      - Monitoring regulated entities
      - Advising the government of regulation
    - - Failure of any ADI has the threat of spreading further to other ADIs
      - The reason why the finance industry heavily regulated
      - Capital Adequacy Ratio: CAR
        
        ADIs must adhere to 8% CAR
        
        They cannot lend out all of their assets
  - - - Regulating financial markets
      - Regulating financial instruments, securities
      - Consumer protection
      - Act to enforce the law
      - Receive, process and store information give to ASIC
    - - More extensive regulation
      - Significant part of compliance
    - - Assist and protect retail investors and consumers
      - Build confidence in the integrity
      - Facilitate capital flows
- - - - Greater consumption
      - Greater investment
      - Stimulates economy and growth
    - - Lower consumption
      - Lower investment
      - This dampens the economy activity and growth
- - - - Where prices for goods and services are freely set by supply and demand without the influence of government policy or rules
    - - Complete regulation: All prices and trade are set by the government
      - We need balance
      - Neither extreme is desirable in maximising economic growth and efficient flow of funds
      - Protect consumers and taxpayers from excessive risks
    - - Over-regulation inhibits the efficient flow of funds
      - de-regulation, the flow of funds guadrupled
      - Under-regulation also inhibits efficient flow of funds