LINDSAY TANNER - OPENING STATEMENT:
The Government is continuing to work with key regulators, Treasury and ASIC in pursuit of specific strategies to deal with problems that particular depositors in mortgage funds have been exposed to as a result of the international financial crisis.
Today the Opposition has demonstrated yet again that it simply doesn’t understand how serious this international crisis is.
Last week Malcolm Turnbull was telling us that it’s all over-hyped. And now today he said that nobody had any concerns about the security of deposits in our financial institutions.
That just shows how out of touch he is with ordinary working people, mums and dads around the country, who were very worried about the security of their savings and who were the key concern in the Government’s mind when we acted to guarantee bank deposits.
If Mr Turnbull thought that nobody was concerned, you’d have to ask why he supported the Government’s decisions to guarantee bank deposits at the time. And perhaps we now understand why he is starting to attack that decision.
Malcolm Turnbull should stop playing politics with people’s savings. He’s got a position every five minutes, a different position every five minutes. And he says on the one hand that he is supporting the Government’s initiatives, that he wants to be bipartisan to collaborate with the Government to tackle this very serious issue, yet acts exactly the opposite.
If he’s serious, he and the Opposition should stop personally attacking the key regulators, they should stop undermining and attacking government initiatives to tackle a crisis that they say they support, and he should make a clear statement of exactly what the opposition believes needs to occur to deal with these problems.
The Government is proceeding to deal with the consequences of an unprecedented international financial crisis in a considered way. It would be to the benefit of all Australians if the Opposition stopped playing politics and started contributing constructively to the solution.
JOURNALIST: What can the Government do to help older investors in these mortgage funds?
TANNER: There are many people for whom there was no intention for them to withdraw their money and the fact that the funds are frozen doesn’t alter their circumstances in the short to medium term. But clearly there are some people that are suffering adverse consequences as they had plans to take their money out for particular purposes. That’s the focus of our discussions with ASIC and Treasury, to look at ways of providing specific assistance to people in those circumstances. The problems you’re seeing now don’t only relate to the guarantee of bank deposits, they also relate more widely to the consequences of the international financial crisis. And in some cases, freezes have been put in place before the guarantee of bank deposits was put in place. So it’s a very complex situation, we’re continuing to work with the regulators to deal with this particular problem that has emerged.
JOURNALIST: Can you direct them to unfreeze those mortgage funds? Or make them pay some money to help?
TANNER: The Government has got a variety of powers and the regulators have got a variety of powers. Obviously we have to be very careful about any kind of intervention in an ordinary market arrangement, where people have chosen to invest in particular products and where particular levels of risk are taken by these companies, these mortgage funds, and where they are not regulated in a strict way by APRA as banks and credit union and building societies are. So any intervention by definition has to be done very carefully and very thoughtfully.
JOURNALIST: There has been a suggestion this morning that people should be able to take out small amounts of money, such as $20,000, for emergency services, such as health care. Are you open to that suggestion?
TANNER: The regulators are working with the Government to address the particular problems, that some contributors to mortgages fund are grappling with. We’ve all seen some of the examples in newspapers of people who had particular arrangements in train that have been disrupted by the freeze in their fund that they were contributing to. And that’s the approach we are seeking to achieve, is a forensic approach that enables us to give some assistance to people in those circumstances, but is limited in its impact on the wider financial system. The Government can’t give blanket guarantees to organisations that aren’t regulated by APRA. It’s a big enough step, in completely unprecedented circumstances, to guarantee things like bank deposits – but we can do that because these organisations are regulated literally on a daily basis by APRA, there is very intrusive regulation that is designed to ensure that their capital base is strong and that they are well run. The regulation that applies to non-APRA regulated bodies is of a much less intrusive nature and therefore a higher degree of risk is involved with those investments, and typically they deliver a higher level of return for investors. The Government can’t give blanket guarantees for funds of this kind, but there are options being considered that will enable us to address some of the problems that specific contributors have been experiencing.
JOURNALIST: So does the Government accept some of the blame for the bungling of the bank deposits and the freezing of the mortgage funds?
TANNER: We’ve been dealing with an unprecedented international financial crisis, and no one would have predicted that the Government would have been imposing guarantees of financial institutions’ deposits. We are in extraordinary international circumstances and our financial system is now a very complex beast with a vast range of different products and institutions and organisations. We’ve also got a situation where some of these mortgage funds have frozen their funds because of the situation internationally, because of fall in share prices both in Australia and internationally, because of the squeeze on credit markets. Clearly issues associated with the bank guarantee have contributed to the overall environment that is operating here, but it is a very complex situation.
Our responsibility is to get the detail right. And at the time the banking guarantee was announced, I’d remind everyone that the Prime Minister in his media statement did point out there would be details being sorted out in ensuing days. We had to act quickly and decisively, that’s what happened.
JOURNALIST: If you’re discussing things today, when can we expect a decision to be made?
TANNER: I can’t predict the timing for a response on these particular problems, because there are very complex issues involved and the key regulators are working with the Government to determine ways to deal with these issues.
There are also initiatives already in play which we expect to have an effect, one is the charging of a fee for deposits beyond a million dollars which ensures that the playing field between banks and other institutions like as mortgage funds is levelled up a bit, compared with where is otherwise would have been. And also the fact that we have made available up to $4 billion of loans to mortgage-fund-like organisations for high quality mortgage lending to help fill the gap that they have experienced as a result of some of their funding sources drying up. These things are important measures that will assist those organisations deal with the problems they are experiencing. But we’ve also got to focus on the here and now problem for that proportion of contributors, depositors, who have got specific problems as a result of the freezes that have occurred.
JOURNALIST: David Murray, of the Future Fund has suggested that the Government or the RBA should either invest in or lend money to some of these mortgage funds. Is that an option you are considering?
TANNER: As I’ve just explained, we are already making available up to $4 billion in funding, loan funding, to mortgage based organisations that are outside the banking sector because they have been particularly disadvantaged as a result of the international financial crisis. And they are really important in sustaining competition in home lending and keeping the banks honest, so we have already taken that step. And we don’t have any plans to do anything further of that kind, but in the circumstances we are in, we are being careful not to rule out any option, not to rule out any possibility. But our position on that is that we have taken that action already, we expect that to have a significant positive effect and to help the sector over time.
JOURNALIST: But isn’t that $4 billion in investment in RMBS, the suggestion was that there ought to be an investment in equity of the funds?
TANNER: Look I can’t comment further on what David Murray has suggested. My understanding is that he was talking about loan funding, not equity investment. Look I don’t want to speculate on some of the more exotic possibilities that people may raise in these discussions. Our job is to work with the regulators, with ASIC, with the RBA, Treasury, all of the key players, to get the best available solution to what is a very specific problem that emerges from a particular set of consequences flowing from the wider international financial crisis.
JOURNALIST: But can you make that distinction between loan funding to these funds, and an investment in the RMBS, which I understand was the $4 billion, doubling of the investment in the RMBS?
TANNER: The $4 billion has been made available to loan funding to organisations that securitize mortgages. And that by definition, does include a significant proportion of the organisations that are in play in the discussions that are incurring. There is clearly a more specific problem here that is not necessarily going to be cured by that funding specifically, but it will contribute to getting a wider solution, a wider return to normality in the overall sector, which you might describe as the non-bank, outside APRA regulation financial sector – which is now quite substantial and is a very important source of financial innovation and competition in Australia’s overall financial system.
JOURNALIST: Mortgage Fund Perpetual had its annual meeting today, and said it’s actually doing quite well, and yet it’s frozen some of its funds? What do you think abut that?
TANNER: I’ve got no doubt that their statement is accurate because the problem that has emerged that if you have a rapid withdrawal of funds by depositors. Then because the money is invested in commercial property, the organisation doesn’t have the ability to immediately go and sell all of its investments or a substantial proportion of investments to return the money to depositors quickly. And that is simply the nature of financial intermediation – that is what is involved. That people contribute money and the money is invested in longer term investments. The purpose of the freeze is to enable stability to be maintained and the organisations to work their way through these circumstances. So I have no doubt that what Perpetual has said is accurate, that the fund is in good shape that it’s continuing to deliver on its commitments. But no fund that is invested in things like property can withstand a rush for the exit by depositors, and then it makes sense, in the interest of all depositors, for these funds to impose a temporary freeze. The key problem, for that group of depositors who were about to, or in the process of withdrawing their money for other reasons that are linked to specific situations they are involved with, people who are about to settle on a house, that kind of thing – that’s the key question we are seeking to address, which is how to deal with that problem which we’ve all seen examples of.
JOURNALIST: Can you give a bit of detail about how did you arrive at the $1 million figure?
TANNER: I can’t disclose discussions that have gone on within the government and with the regulators about where an appropriate cap has to be in order to deliver on the commitments that are part of this guarantee process. There is a point between the two guarantee regimes where is something of a grey area. If I give the bank $100 it’s pretty obviously a deposit. If I give the bank a $100 million it starts to lose the character of a deposit and becomes something like a wholesale loan. So there is a point in between those two extremes where you have to make a call about whether or not you start charging for the guarantee and where you go beyond what you might call ordinary deposits. We've made the call, based on discussions with the regulators, to set that at $1 million – we think that’s the right point. People are entitled to a different view of course and there are different levels that have been set in different jurisdictions around the world and of course there are differences in different financial systems too which make comparisons a little bit complicated.
JOURNALIST: There are a quarter of a million Australians that have their assets frozen, do you acknowledge that the Government has to do something soon?
TANNER: We’re working with the key regulators to tackle the problems to arise from specific groups of people who have funds frozen in these mortgage funds. But bear in mind, that a very substantial proportion of these people have no particular desire or need to access these funds immediately or in the short term future. Because they are typically depositing reasonable sizeable sums, to earn an income stream where they get a good rate of return and the investment is reasonably secure. There is a proportion of people who have a significant problem, but there is no particular reason for us to assume anything about how long market conditions will force this freeze to continue. It will vary from fund to fund. Some of these funds are very large, highly credible public organisations. We’ve got Perpetual, Colonial, AXA. These are all big names. But some of the other funds involved are relatively obscure, fairly small, and inevitably in most cases a bit riskier than those big organisations. So we’ve also got to be careful not to generalise, because we’ve got a very diverse sector a very wide range of different organisations.
JOURNALIST: The Government said on Friday that they would seek urgent advice from ASIC, can you give us an indication what kind of advice they have given so far?
TANNER: Look obviously I can’t reveal the nature of conversations that are occurring between the Government and the regulators on these issues and it does traverse some pretty complicated territory. We will be dealing with these issues as expeditiously as we can. But it’s crucial that we get them right, it’s crucial in what are totally unprecedented circumstances with the impact of this international financial crisis rippling across the world and affecting Australia, notwithstanding our very strong economic position. It’s crucial that we get it right. There are complexities in our financial system that make a lot of these choices very difficult choices, because you’ve got such a diverse and complicated array of products and institutions and players that any kind of action is going to be very difficult to calibrate.
JOURNALIST: Does the financial crisis pose a threat to the government’s infrastructure plans and the funds that underpin those plans?
TANNER: We’ve already got somewhere in the vicinity of $26 billion in or on the way into the three big infrastructure funds, and that’s more than enough for the earlier stages, the initial years, of funding that is anticipated to flow for infrastructure investment in Australia. These funds were always intended to be long term funds. They weren’t intended to be funds that would all be tipped out into the economy in a space of two or three years. For a lot of highly valid reasons so the funds that are already available, already either in those three big fund are more than enough to finance the plans that we have put forward and are in the process of getting initial advice on to refine them into specific project categories, and clearly into the longer term, there is a variety other issues that are involved here, such as projected economic growth, surpluses, and availability of private money and indeed state government money. All of those things will unfold in due course. But our commitment to investment in the infrastructure funds and indeed to bring that forward a bit to keep economic activity and employment ticking over remains unchanged.
JOURNALIST: What about the climate change policies?
TANNER: I note that Malcolm Turnbull is again backing away a bit from what the Liberal party occasionally portrays as a commitment to tackle climate change. We believe it’s important to keep proceeding with our commitment to deal with climate change. We’ve had ten years of inaction. We’re in Melbourne here, living in a situation where we are on track to have the lowest rainfall for October, after we’ve had the lowest rainfall ever in September. If the Liberal party don’t get it now, they’ll never get it. We have a serious problem to address in this country with climate change. We’ve wasted too much time, we can’t afford to just sit back and say we’ll get around to it when we’ve dealt with some other issues. Whether we like it or not, we’ve got to proceed with the white paper process, with the establishment of an emissions trading regime, a Carbon Pollution Reduction Scheme and with our contribution to international negations, because this problem is mounting, and the longer we wait to take action the more difficult resolving it will become.
Certainly the current economic circumstances add to the list of the things that the Government has got to tackle. It’s clearly a critical priority for us to stabilise the financial circumstances, we’re working very hard at all of those issues. That doesn’t mean that we stop doing other crucial things as well. And in particular, it doesn’t mean we just forget about climate change for awhile.
JOURNALIST: Has the Government spoken to David Murray or to the Future Fund about how they might use the $50-$60 billion of the RBA’s to deal with this crisis?
TANNER: I have spoken to both David Murray and Paul Costello and the Chair and CEO of the Future Fund as I ordinarily do. In particular I spoke to them in recent times around the time of the release of the annual report. But I would emphasise that in no circumstances do I seek to direct the Future Fund in its investment decisions.
It’s charter which was established by the previous government and which we support, is to make investment decisions, in accordance with a formal investment mandate which is handed down by the Treasurer and the Finance Minister with the objective of making money. It has done a very good job thus far in extremely difficult circumstances. It has broadly held the value of the fund over the period of the time it has been actively investing in circumstances where the vast majority of other equivalent funds have gone backward. But it has to make its choices on its own initiative and would be entire improper for me or the government to interfere in those choices. And it’s entirely improper for me to even seek to interrogate either David Murray or anyone else about the detail of those choices. The purpose of that fund is to invest for the long term to build up a base for financing long term government liabilities. That’s a bipartisan view across both sides of politics, we have no intention of changing that.
JOURNALIST: Well in that case, would you suggest that Australian mortgages or debt to Australian mortgage trusts is a good investment at the moment?
TANNER: I’m not qualified to provide investment advice, and I certainly think it would be inappropriate for me to provide investment advice to anybody or the Future Fund in particular. It’s not my core area of expertise and they can make their decisions as other investors will whether or not to invest in particular funds or shares. And clearly the circumstances that have taken hold in the Australian economy and pretty well all western economies over the past month of so, have produced bargains in some areas, but others will have to judge, where the bargains are because it’s their money they are staking. And in this case, it’s a taxpayer’s money but with an arrangement that is designed to ensure that politicians like me aren’t making the investment
decisions. That arm-length experts, people with extensive background in investment decision-making are actually making those calls. That’s how it should be and that’s how it will remain.
JOURNALIST: BHP and Rio say the declaration of their rail lines is going to affect efficiency, does the Treasurer’s decision put at risk export earnings at a time when we can ill-afford to lose it?
TANNER: There has been a robust debate about this issue, where on the one hand BHP and Rio will assert that this will inhibit their activities. On the other hand, Fortescue argue that you will get greater efficiency with only a single infrastructure installation with multiple users, rather than requiring them to build an entirely separate rail infrastructure which of course adds to overall costs. There’s a vigorous debate about these things. The Treasurer has come down on the side of the advice from the National Competition Council. Which broadly is that greater competition will be beneficial for the nation and for our export performance. And that although inevitably, BHP and Rio would prefer not to have to face that greater competition. It is reasonable for the ACCC to act as an umpire and if no commercial arrangement can be reached between Fortescue on the one hand and BHP and Rio on the other, then the ACCC has the ability to arbitrate those matters. These are very tricky issues to deal with. The Treasurer has made the call on the basis of expert advice of the NCC and we believe it’s the right call.
JOURNALIST: Is there a role for the commercial banks to assist with the liquidity of the non-bank sector?
TANNER: One of the reasons why our banking system is in very good shape and why our major banks are in robust health notwithstanding financial institutions have been under internationally is because they have been allowed to make commercial decisions without interference from other factors. So, the answer to that question is broadly the same as the answer to the questions about the Future Fund, if the major banks feel that investing in any form in mortgage market activity that is outside their existing activity is a good bet for them, is a good investment, then that’s up to them to make that call. It’s certainly inappropriate for me to be putting any pressure on the banks to put their investment in any particular direction. It’s one of the reasons why our banking system is robust, we’ve got strong regulation, but we’ve also got a framework that keeps interference from politicians out of the picture on key questions like what investment path should a bank choose. I’m certainly not about to change that, it’s very important that these decisions are governed by commercial factors and by decisions banks make on behalf of their shareholders about where they should and shouldn’t invest their money.
JOURNALIST: What about on the dollar, do you agree with the RBA’s intervention?
TANNER: The RBA is buying and selling Australian dollars pretty well all the time. This is just a normal situation in a country where you’ve got a floating currency. The floating Australian dollar is one of the great economic stabilisers that we have in this country. It was one of the reasons we got through the Asian financial crisis in 1997 relatively unscathed, it was one of the reasons why we got through the dot com collapse in the US a few years later relatively unscathed. It acts as a great shock absorber, and there is no question, there are lots of businesses all around Australia, particularly in tourism and in manufacturing who are getting a breather, a bit of breathing space as a result of the fall of the dollar. That will help to keep economic activity, growth and jobs ticking over. That’s very important. The RBA is always in the market, in some form or other, in the currency markets, playing an important role, but they typically don’t comment on that role and the Government doesn’t interfere in that role or seek to comment about the RBA’s activities. Other than to point that having that floating dollar is important for the health and stability of our economy.
-ends-
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