Financial deregulation came to Australia later and more abruptly than in other developed

countries. The early 1980s saw the first major wave, but a second wave is needed now.

Financial deregulation is part of a more general process of deregulation. The overall process has

put upward pressure on the rate of unemployment but has also produced a more dynamic

economy with evidence of faster productivity growth.

Profit margins are falling strongly in all Australian financial services. This is a major benefit to

consumers of financial products and services. There will be continued falls in margins coupled

with dramatic improvements in client service. This is a direct result of the process of financial deregulation.

But there is a lot of work still to be done, amounting to a second wave of financial reform.

Questions addressed in this paper include:

• Why do we apply the principle of "caveat emptor" to use of bank deposits and to the

buying and selling of shares, but have a much more costly and paternalistic system of

consumer regulation for many other financial services?

• Why do we have such an ad hoc system of prudential supervision, with the same

resources put into oversight of weaker, less well-capitalised institutions as are put into

the stronger institutions?

• Does our current competition policy encourage the achievement of world's best practice

by major Australian financial institutions?

• What are we doing to re-establish a culture of thrift in Australia, which requires

progressive reduction in rates of tax on all savings vehicles as well as the guarantee of

effective price stability in Australia?

Australia cannot stand apart from major global forces. A number of powerful trends have

dominated post-war economic development.

• Deregulation of goods markets - which began with the development of the European

economic community in the 1950s, joined by Australia when import quotas were

abolished in 1960, accelerated when tariffs were cut in 1973 and more systematically from 1985.

• Rapid growth of "emerging economies" - Japan, South Korea, Taiwan, the South East

Asian Tigers, China, India, some Latin American countries. These countries generally

have high saving rates, ungenerous social welfare systems and unregulated labour

markets, making them formidable competitors for the older, richer economies.

• Dramatic advances in communications, information processing technology, travel and

transport, all of which contribute strongly to the emerging "global village".

Dismantling war-time financial regulations proceeded at different speeds in different countries.

Among the leading OECD countries, major mileposts included:

• convertibility of Sterling (and satellite currencies) in 1958.

• progressive elimination of controls over volumes and prices of lending by banks

throughout the 1950s and 1960s.

• reduction in or elimination of most controls over international capital flows among major countries in the 1960s.

• floating of the $US in 1971.

• progressive moves to using open market operations to control monetary policy in the 1950s (US), 1960s (UK) and in the 1970s (Europe generally).

Those trends were fully embraced in Australia only with the government's acceptance of the

findings of the Campbell Committee in 1983. At about the same time the $A was floated and

remaining exchange controls were abolished. Australia entered the modern world of free

financial markets later than most, and more abruptly.

Those of us who were involved in the process of financial deregulation had varying attitudes to it:

• Most saw it as inevitable, part of Australia's maturing, unavoidable if we wished to

participate fully in global economic development.

• Some of us saw it as another crucial step on the road to economic reform, another wedge

into an ossified economy.

• Others emphasised the libertarian view that deregulation would produce a fairer, more

democratic (and therefore more efficient) financial system - credit would be available to

all, not just the relatively established, relatively risk averse, borrowers.

As to the risks:

• Some were concerned that the sequencing of deregulation was wrong. Driving a

financial wedge into an economy with endemic budget deficits and a highly regulated

labour market some saw as a recipe for potential disaster. The reformers pushed on -

expecting the financial wedge to discipline both governments and Australia's entrenched

industrial relations club.

• Few realised just what a volatile outcome would be produced by a mix of ready access to

credit, over-enthusiastic bankers, inexperienced risk assessors and a tax system which,

under conditions of inflation, encouraged excessive borrowing and lending.

One can attempt to assess the outcome of a major change such as financial deregulation in a

variety of ways. Sorting out cause and effect is difficult, probably impossible, since one is

examining a unique historical process in which everything is interacting and changing.

I will examine two sorts of evidence. The first is the macro-economic evidence - what have been

the big changes in economic outcomes, and how can these be related to financial deregulation?

The -second is micro-economic - what has happened in the financial system itself. Then I shall

discuss some important issues still to be resolved.

I have circulated a set of charts which summarise available evidence on both macro and micro issues.

• Growth of real GDP was lower in the 1970s, 1980s and so far in the 1990s than it was in

the 1950s and 1960s. While many other things were different, clearly financial

deregulation did not unleash a growth surge, nor did it prevent a serious recession in the

early 1990s.

• There is, however, significant evidence of improved productivity growth in the past few

years. This may be one consequence of financial deregulation, although tariff cuts, lower

inflation and better economic management generally also vie for recognition.

• Inflation was somewhat lower in the 1980s than in the 1970s, although still much higher

than in the 1950s and 1960s. Inflation has been distinctly lower so far in the 1990s,

although as yet there is no guarantee that this will remain the case. Inflation was

controlled in the regulated era, and is again under reasonable control using market related

control methods. The process of deregulation for a time somewhat confused the control

process, but our central bankers should feel much more confident in the deregulated environment.

• Australia's international debt grew strongly during the period of financial deregulation,

both absolutely and in relation to GDP. There was in fact a general increase in various

financial aggregates relative to GDP. Clearly financial deregulation encouraged those

trends. The optimists see this as a useful "gearing up" of Australia's balance sheet while

the pessimists - including me - emphasise the constraints this imposes on our freedom to

act. (The reasons for this are well known. Relatively high international debt limits our

ability to spend government money to alleviate poverty and offset business cycle

downturns. International market participants watch closely economic and political events

and are quick to punish behaviour of which they disapprove. Lower currency values and

higher interest rates are the immediate response to perceived failings.)

• Australia's overall saving has been insufficient to prevent rapid growth of international

debt. In the early 1970s Australia had a current account surplus. By 1982 the current

account deficit was almost 6% of GDP, and this crisis level (when interest rates had to be

raised and government spending curtailed) has subsequently been reached on three

separate occasions. Australia's saving rate began to fall well before financial deregulation

gathered pace, and indeed the big deterioration was in 1974/75. The reasons for the

continued decline in saving are complex - high inflation in the 1970s and 1980s, a tax

regime hostile to saving, a welfare system which provides little incentive for "self

insurance" and (I suspect) somewhat mysterious tides in national culture.

• Australia's rate of unemployment has risen strongly, in fits and starts, throughout the

post-war period. Successive peaks were 3% in 1961, 6% in 1974, 10% in 1983 and 11%

in 1992. Obviously the trend to higher unemployment began well before financial

deregulation, but the trend was reinforced by deregulating goods and financial markets

while maintaining a relatively strongly regulated labour market.

• The most important point, closely related to increased productivity growth, is that in

many activities and markets Australia seems far more competitive than it was. Cuts in

bank lending margins, falls in insurance premiums, cuts in costs of telephone calls,

cheaper air travel, improvements in customer service levels generally are all signs of a

more dynamic economy. This is very difficult to measure or to analyse, but I strongly

believe that the general process of deregulation (including financial deregulation) has

been important. It is important to note, however, that Australia is not yet decisively

competitive in the international market place. There is undoubted improvement compared

with our past performance, but others are improving faster.

My overall conclusions about the macroeconomic evidence include the following:

• Financial deregulation, so far at least, has had at best a minor positive effect on growth,

although it has helped to increase productivity growth.

• Financial deregulation complicated for a time economic management, and may have

delayed achievement of a relatively low rate of inflation.

• However, financial deregulation has linked us closely to international financial markets,

and participants in these markets provide unforgiving dispassionate evaluation of

domestic economic policy - thus "keeping the policy makers honest".

• With a relatively highly regulated labour market, financial and goods market

deregulation added to the upward pressure on the rate of unemployment that was firmly

established before deregulation.

The major steps on the road to financial deregulation are covered in the attached timelines.

Removal of ceilings on interest rates, abolition of banks' lending limits, floating the Australian

dollar, abolishing exchange controls, licensing 16 foreign-owned banks and conducting

monetary policy through open market operations were the significant steps.

Many of the effects of these changes are hidden within the aggregates usually calculated. For

example, money market corporations, finance companies and building societies all flourished

while banks were restricted, and these trends have subsequently been reversed. Fortunes were

made (and some were lost!) in the unregulated sector before financial deregulation and then

there was a slow erosion of value.

Such trends are entirely predictable. Bottling up pressure in one direction intensifies pressure in

other directions. There are many examples in our financial history.

• Bond rates were heavily controlled in 1974 but bill rates exceeded 20%.

• The currency was controlled (through the so called "crawling peg") in early 1983 but $3b

flowed out of Australia in the week before the Federal election, only to return once the

currency was devalued by 10%.

More generally, restricting the ability to compete of one set of institutions, such as the banks,

creates opportunities for other groups. In the same way, restricting the opportunities for

Australian financial institutions to achieve world's best practice will create opportunities for

overseas owned institutions, both in our markets and in the regional and global markets.

Shareholders of Australian banks of course lost a lot of money when they coped badly with their

new found freedom in the late 1980s. Recouping these losses kept lending margins high for a

time, but competition from non-bank institutions is now making its presence felt.

According to a recent report (Weekend Australian, 22-23/6/96) recent RBA research shows that

bank lending margins peaked at around 5.5% in 1988, and have since declined to current levels

of 3% to 4%. Both recent attacks on home lending margins within Australia, and international

experience generally, suggests that further substantial falls in lending margins are coming.

Margins have fallen sharply in other financial services. Premium rates for insuring the life of a

35-year-old male in good health, for example, are now up to 40% below rates charged in 1992.

The pressure is on the fund managers also. In the early 1980s, the standard "wholesale" rate for a

balanced fund was of the order of 1%. Now the leading managers are battling to hold their

equivalent rate at 0.6%, while larger sums attract fees of 0.4 and 0.5% and further falls are inevitable.

Numbers employed in the financial sector are one indication of the overall effect. Employment

was around 265,000 in 1984. It rose to a peak of around 366,000 in 1990 and subsequently fell to

around 314,000 in 1995. Closing bank branches, rationalisation in banking, insurance and funds

management will all provide further downward pressure. Productivity is poorly measured in

service industries but I venture the judgment that when the dust settles Australia's financial

services will be much more productive than they were a decade ago.

There are four major issues currently impacting on the future of Australia's financial system.

Those concern regulation, especially as it relates to consumer disclosure, prudential supervision,

the competitive framework and Australia's inadequate savings rate.

While there has been a lot of "top down" financial deregulation, in many ways the regulatory

burden has increased. This is especially true of the rules for dealing with consumer disclosure

which in many cases are complex and time consuming. Certainly they impact with different

weight on different products.

It may be best simply to list the requirements for different types of financial instruments:

• Anyone can make a bank or building society deposit, or withdraw funds, without

requiring any justification - no complicated "needs analysis" here. Anyone opening a new

account needs to prove their identify, new depositors will be asked if they wish to

provide their tax file number and loans are subject to the credit laws.

• Buying or selling shares is also simple. One talks to a licensed sharebroker, he gives

advice (not generally recorded or audited) and the deal is done. If one is buying newly

issued shares, one will be provided with a lengthy prospectus, but I suspect few of these

are read in any detail except by the institutional analysts.

• Someone seeking to purchase risk insurance is required to complete a detailed proposal

form, provide medical information and possibly undergo medical testing to enable the

insurance company to accurately assess the risk. Regulation requires that, if advice is

given by an agent (as is usually the case), the customer should be asked in most cases to

provide a full range of information for a fact finder. The agent is required to produce a

customer advice record, which explains according to the client's stated needs the

rationale for the choices made. More generally, he must abide by the industry "code of

practice" which specifies strict guidelines as to how the agent must conduct himself.

• An employer arranging superannuation for his or her staff, which complies with the

compulsory SGC levy, has to calculate the correct payment, be aware of any award

obligations and complete the appropriate application form. The fund needs to be a

complying superannuation fund and abide by all the requirements of the Superannuation

Industry (Supervision) Act These requirements specify the behaviour of trustees in

protecting the interests of fund members. Trustees must provide annual statements and

reports, and ensure that there are "appropriate" investment strategies and risk

management procedures.

• Personal (top up,) superannuation requires completion of an application form in a current

brochure. The investor must confirm that they are eligible to contribute (based on a

complex array of rules and transitional rules). If they are rolling over an eligible

termination payment (ETP) they must also provide the appropriate tax office form.

Regulations require the selling institution to ensure the funds are an ETP. Tax may need

to be deducted. If the superannuation fund invests in life office products, needs analysis

and customer advice records are also required.

• Someone seeking to invest in an insurance bond, rollover fund (deferred annuity) or

immediate annuity has to complete the appropriate application form contained in a

current Customer Information Brochure. Also if advice is given (and it usually is) they

will be asked to provide a full range of information for a fact finder. The agent or

financial planner will then be required to provide a customer advice record, similar to

that required for risk products, but usually more information must be provided.

• Someone attempting to buy a unit trust must complete the application form in a current

prospectus. Also if advice is given (and it usually is) they will be asked to provide a full

range of information for a fact finder. The proper authority holder must provide

"unbiased advice" which suits the customer's needs and circumstances. In this case there

is no formal requirement for a customer advice record but the financial planner would be

wise to keep records which prove that he has given appropriate advice.

I have deliberately presented these examples from the perspective of the consumer although it is

also clear that the financial adviser or life agent (and the companies the agent is representing)

have significant responsibilities to ensure that "due process" is followed. It is clear that very

different levels of regulation are applied to different financial products but it is less clear that

these differences can be justified.

At this point I am happy to acknowledge two points, both of which are raised in a recent speech,

"Adjusting Regulatory Structures to Market Needs" by R G Glading, Deputy Commissioner,

Life Insurance, Insurance and Superannuation Commission (ISC). The first point is that

decisions about some long-term pension products in many cases involve large amounts of money

relative to the client's net worth or income, and sometimes decisions are made in "an atmosphere

of confusion and anxiety". Some element of explicit consumer protection is clearly warranted in

such cases.

This challenging speech also acknowledges that the ISC and the Australian Securities

Commission (ASC) are actively engaged in the task of regulatory harmonisation, although I

must say that I would encourage simplification as well as harmonisation. But it is also interesting

that Glading invites life company Boards and CEOs to convey their views more clearly to their

staff if they favour a "less prescriptive, more commonsense approach to compliance".

My general point, however, is simple. Philosophically we need to sort out when to apply the

principle of "caveat emptor" and when to be paternalistic. I believe that most people are pretty

good judges of their own welfare and mostly need simple clear reliable "health warnings" on

financial products. Those who are in favour of complicated disclosure at the point of sale seem

to forget that useable information is usually brief and to the point. Overall, our current system is

far too complicated and paternalistic.

We should be able to devise a simpler, fairer and above all more efficient system of consumer

disclosure. It is a major task for someone.

Prudential supervision is currently conducted by several institutions - the Reserve Bank of

Australia (RBA), the ISC, the ASC and various other regulators under the umbrella of the

Australian Financial Institutions Commission (AFIC).

There is an overarching Council of Financial Supervisors, which is chaired by the Governor of

the RBA.

The approach of each regulator is somewhat different. All rely on regular reporting of the

financial situation of each institution in its bailiwick.

The RBA has a duty to protect bank depositors (though not, contrary to popular belief, to

guarantee this) and as part of this duty oversees the prudential management of the banks. The

RBA arranged a forced marriage for the troubled Bank of Adelaide in 1979, an action that

decisively protected the interests of depositors, whilst leaving the shareholders unhappy.

The RBA monitors ownership and control, minimum capital requirements, liquidity

management, large credit exposures, impaired assets, associations with non-banking financial

institutions, funds management and securitisation guidelines and external audit arrangements.

The ISC monitors life insurance offices and superannuation funds, requiring adequate risk

management policies and other internal controls. Life insurance companies are required both by

the ISC and their appointed actuaries to put aside reserve assets in a defined and conservative

manner.

The ISC also controls the disclosure and competency standards for the sale of products.

Requirements include detailed and prescriptive guidelines for sales documents and sales

practices and a code of practice.

The ASC administers the Corporation Law and regulates the securities markets (including shares

and unit trusts).

It does this through the licensing of groups of dealers and advisers, the registering of auditors

and liquidators, and by requiring regular reports from financial institutions which sell shares and

unit trusts.

AFIC is the national supervisor for building societies and credit unions (which are State

regulated). Friendly societies, which are also State regulated, do not yet come under the auspices

of AFIC.

State authorities have day-to-day responsibility for supervision while AFIC plays a role in

establishing the prudential standards and minimum operating standards, which are broadly based

on those applying to banks.

Of course, in addition to the above, we also have the Australian Competition and Consumer

Commission and a series of State based regulators to look after consumer protection.

The current system of regulation is based on institutions and products, and can fairly be

described as ad hoc, or indeed “Jerry built”. Most regulators have a consumer protection

component to their mandate although for bank deposits and shares - products at opposite ends of

the spectrum of risk and reward - the principle of "caveat emptor" is applied most thoroughly.

For other products the regulations about disclosure are paternalistic, as I have said.

When we come to prudential supervision the current system can also be described as

paternalistic. What seems to be forgotten by our regulators is that managements and shareholders

have a great interest in protecting the financial viability of their firms. In finance, as in business

generally, there is nothing so helpful as a sound reputation, just as there is nothing so damning as

a poor one. Resort to extensive official monitoring also ignores the role of the private rating

agencies, which will develop and grow as the financial system evolves.

I am one of those who would like to see less, not more, regulation of our financial institutions.

Self-regulation is likely to be more effective, not less effective. Customers have to accept

responsibility for their actions, and all pervading regulatory frameworks reduce the incentive for

appropriate due diligence by individuals.

However, I accept that there is a case for some official supervision. My main proposal for reform

is that we develop a system in which most effort is put into monitoring the performance of the

weaker institutions. There are a number of indications of strength or weakness but in practice an

excellent overall measure is the level of capital in relation to relevant benchmarks.

I would like to see minimal official scrutiny of strong, well capitalised institutions, with the

efforts of the prudential regulators put mainly into the weaker, poorly capitalised institutions.

This approach follows that used since 1992 by the US banking regulators. Capital adequacy

levels should be laid down by the regulators, who should insist that levels achieved by various

institutions be published, following the approach of international banking regulators generally

under the so-called Basle convention.

In deciding who should carry out this work, I would note that the central bankers have developed

the best overall system, both within Australia and internationally. If only for this reason I would

suggest that the RBA's current coordinating role be maintained and strengthened.

There is, however, an even stronger reason for retaining a strong supervisory role for the RBA.

This is because in a situation of financial crisis the central bank will need to move quickly and

effectively. With a clear role as supervisor of major deposit taking institutions, as well as its

intimate knowledge of financial markets, a central bank is uniquely placed. As US Federal

and Urban Affairs, March 2, 1994.)

I emphasise that my recommendation that the RBA exercise strong leadership in prudential

supervision does not extend to consumer disclosure, where a separate agency should be

responsible to develop and implement a fair, efficient system. The unifying thread, however, is

There is also a powerful moral case to reduce the burden of regulation. (Here I repeat the

conclusions of P D Jonson & Elizabeth Prior Jonson, "Financial Regulation and Moral Suasion",

Quadrant July/August 1994.)

It has been widely observed that there are strong forces making for the blurring of distinctions

among financial institutions, and increasing globalisation in the financial services industry. This

is a natural and predictable consequence of financial deregulation and is associated with greater

competition, lower profit margins for producers and better deals for consumers. Major current

trends include:

• Banks for many years have been involved in the provision of insurance services, and

pressure on margins in their core banking businesses will intensify this tendency.

• Life insurance companies are selling mortgages, thereby helping to erode profit margins

in banking.

• Both banks and life insurers are placing more emphasis on investment management.

Together with the specialist fund managers, they compete fiercely to manage the

retirement savings of Australians.

• New players, with the technological skills but without a long history of money

management, are capable of capturing significant market share.

There are many consequences of these trends, including for the regulation of the financial

system. For the present, I would focus on the question of competition policy.

I wish to emphasise one simple point. Under the previous government, competition policy was

mainly concerned with the safeguarding of consumers in a narrow, industry specific nationalistic

framework. The most common test for mergers, for example, seemed to involve how it would

affect market share in Australia, and indeed in the much smaller geographic units which are the

individual States.

In my view, future competition policy should focus much more strongly on the provision of

entities that are able to compete on the regional, or even on the global stage. Consumers will best

be served if there is world's best practice in as many activities as possible, and this may well

require fewer, more effective entities.

Capitalising on the uncertainties surrounding the future of Hong Kong should also be a key

objective for our financial strategists. Sydney has a lot of natural advantages as a regional

financial centre. I hope that someone in government is thinking about how best to build on these

advantages.

Many people believe that Australia's national saving is deficient. But most people disagree on

how to boost savings. In this respect Australia in recent years has come to resemble an ocean

liner into which water is quietly pouring, yet we cannot agree on how to work the pump.

Propositions that are widely accepted include the following:

• As a nation we need to invest more if growth is to be maximised and if rewarding jobs

are to be available to all Australians.

• Even with current, deficient levels of national investment, national saving is too low to

balance the books - so we have a chronic current account deficit and rising levels of

international debt.

• Our population is ageing but people are not saving enough to provide themselves with

decent incomes in retirement. This will put enormous and growing pressure on the tax

and welfare systems.

• Ageing will also put a tremendous strain on financing health and long-term care

expenditure for the elderly. The magnitude of this problem is similar to that of providing

adequate retirement incomes.

The previous government's system of compulsory superannuation for most workers is widely

believed to provide a good solution for retirement incomes. At best it will be a good solution for

our children's children, since the amount collected will not be substantial until the full 9% levy

has been invested for 20 to 30 years. The big danger in the current system is that people will

save less outside the compulsory system. Many Australians of this generation will reach

retirement with totally inadequate overall savings. Unless there is a major change in savings

behaviour the saving shortage will be chronic, both for this generation and succeeding

generations.

This government's determination to balance its budget as soon as possible is welcome, as are the

parallel efforts of State and local governments throughout Australia. Research by the Life,

Investment and Superannuation Association (LISA), however, shows clearly that the

combination of budgetary balance and compulsory superannuation is an inadequate response to

the problem of deficient national saving.

The obvious conclusion is that there need to be greatly improved incentives for voluntary

savings, and reduction or removal of existing disincentives. There are several points to be made

about the current system of collecting tax and its effects on national saving.

• Taxing the income from savings involves taxing income twice. Savings should be

encouraged, not discouraged, by our taxation system. It must be said again and again. A

tax system should not only collect taxes efficiently and fairly. In addition it should so

collect them that it does not retard the creation of those incomes from which taxes

ultimately come.

• I accept, of course, that there are budgetary costs of increasing incentives for voluntary

savings, and that a lot of hard thinking is needed on the best ways of implementing this

necessary reform.

• I believe that the best overall solution is a phased move to reduce the burden of income

taxes, and I believe that this can be done in ways which will maintain - and indeed

increase - the efficiency and the fairness of Australia's tax system.

• Reducing the burden of income taxation does not demand the introduction of a GST -

indeed this is probably not the best way. Alternatives include reducing spending by

government, switching from progressive income taxes to progressive expenditure taxes

or simply reducing rates of tax on saving, following the precedent set for share

investments with dividend imputation.

• A workable solution may be to set ourselves the target of reducing tax rates on all

savings vehicles to that on superannuation savings over the next five years.

The main objection to cutting taxes on saving is that this will help people on high incomes a lot

more than it helps people on low incomes. The harsh reality of course is that most saving is done

by the relatively well to do members of society, and if we wish to raise national saving we must

accept this reality.

But there is one major indirect way that increased saving will help those on low incomes, and

that is by reducing interest rates. The high saving countries are the low interest rate countries

and, by saving more, we can reduce Australia's interest rates decisively.

I would add that there are other ways to help those on low incomes - cutting income taxes

generally as well as reforming the welfare system to reduce the current very high marginal tax

rates commonly incurred on additional earnings by welfare recipients.

Finally, I believe strongly, even passionately, that the question of deficient saving is not all about

budgets, incentives, disincentives and systems of compulsory saving. There is an important

cultural aspect that no-one fully understands. This is partly because major financial institutions

have lost touch with their customers. Partly it is because of the creeping socialism of the

post-war period, which has discouraged, some would say destroyed, the ethic of self sufficiency

across a broad front.

A major reason for our poor saving performance is inflation. The major burst of inflation in the

1970s and 1980s was in my view the most important destroyer of Australia's traditional culture

of thrift. It will take many years of stable prices to rebuild a savings culture in Australia - but we

must never forget the desirability, indeed the urgent necessity, of doing so. One of the surest

ways to rebuild a savings culture is to provide the guarantee of effective price stability in

Australia.

The major effect of financial deregulation was to expose and emphasise the endemic weaknesses

in our economy. Although the sequence of deregulation was not ideal, Australia is now at a

point where the next steps on the road to an efficient and fully competitive economy are clear.

The weaknesses in our economic system will be overcome by creating a freer labour market, by

increasing national saving, by reforming our social welfare system and by continuing the process

of macroeconomic reform generally. Raising national saving is a major task, which requires

efforts by government, both to reduce its own demands on capital markets and to improve

incentives for private saving. Our financial institutions and industry groups must help by

publicising the benefits of higher savings programmes and by devising more cost effective

products.

There are some major challenges within the financial system to reform consumer disclosure, to

simplify and harmonise prudential supervision and to help our major financial institutions to be

internationally competitive. This second wave of financial deregulation will be an important part

of making Australia one of the economic success stories of the twenty-first century.