Banks must be prepared to accept tougher capital adequacy rules and revised accounting standards if a genuine commitment to avoid a repeat of the global financial crisis is to be made, according to the chair of the International Actuarial Association Enterprise and Financial Risks Committee, Tony Coleman.
Coleman has told an Institute of Actuaries of Australia conference in Sydney today that it had been widely recognised that an over-reliance on monetary policy and an inability to manage asset price bubbles were key drivers of the collapse.
He said pro-cyclical capital requirements had then worsened the crisis by leaving banks disastrously short of capital when they needed it most.
In a bid to address the problems, Coleman pointed to two options — formula based and discretionary.
Coleman said formula-based capital management drew down on insurance industry practices where companies were required to store capital in good times to create buffers when markets turned sour — something that could be implemented by the Australian Prudential Regulation Authority (APRA) with government approval.
He said, alternatively, discretionary capital management could be implemented by an independent reserve bank setting capital adequacy parameters.
Coleman said expanding the use of the actuarial control cycle approach was also recommended to improve risk management.
The research house has offered a silver lining after super fund returns saw the end of a five-month streak last month.
A survey of almost 6,000 fund members has identified weakening retirement confidence, particularly among those under 55 years of age, signalling an opportunity for super funds to better engage with members on their retirement journey.
The funds have confirmed the signing of a successor fund transfer deed, moving closer to creating a new $29 billion entity.
A number of measures, including super on Paid Parental Leave, funding to recover unpaid super, and frameworks to encourage investment in the energy transition, have been welcomed by the superannuation industry.
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