Crisis Management Arrangements
Each of the four Council of Financial Regulators (CFR) member agencies has a specific role in planning for and managing a major disruption to the financial system. The CFR has a role to coordinate responses to potential threats to financial stability. This role is detailed in a Memorandum of Understanding (MOU) dealing specifically with financial crisis management arrangements, which the CFR members signed in September 2008. The MOU reflects the strong commitment of the CFR agencies to open exchange of information and cooperation in crisis management. It covers the objectives of financial distress management and the principles that will guide decisions and actions during times of financial distress. It also sets out the responsibilities of the individual CFR members during such times.
In its role as prudential supervisor and resolution authority for regulated financial institutions, APRA aims for institutions to be prepared to recover from severe distress themselves, including through credible recovery plans. Recovery plans are developed and implemented by the financial institutions, and reviewed by APRA. They outline actions that financial institution could take to restore viability following a large loss or liquidity shortfall (for instance, strategies for raising additional capital). If recovery actions are insufficient and APRA determines that a financial institution is or may become non-viable, it has the powers to step in to protect depositors and beneficiary interests, maintain the continuity of critical functions and safeguard financial stability. This process is commonly referred to as ‘resolution’.
The CFR also plays an active role in advancing Australia's crisis management arrangements, including through the development of Australia’s deposit guarantee arrangement, known as the Financial Claims Scheme (FCS).
CFR agencies conduct regular crisis exercises and simulations to ensure they are adequately prepared to resolve failures and near-failures in an orderly manner. Simulations are sometimes also carried out under the auspices of the Trans-Tasman Council on Banking Supervision (TTBC).
Trans-Tasman Council on Banking Supervision (TTBC)
In recognition of the strong links between the Australian and New Zealand financial systems, the CFR also plays a central role in coordinating and advancing trans-Tasman crisis resolution and planning arrangements. This is achieved through CFR members' involvement in the Trans-Tasman Council on Banking Supervision (TTBC).