Macroprudential Analysis and Policy in the Australian
Financial Stability Framework – September 2012 1. Executive Summary

Australia's financial stability policy framework involves clear mandates for financial stability distributed across several agencies, with the Council of Financial Regulators (CFR) playing a central coordinating role. The prudential elements of that framework rest with APRA, with analytical support from the RBA. This document – originally prepared as background for the IMF FSAP team in early 2012 – sets out the tools and practices of these two agencies that are designed to support financial stability from a system-wide perspective. The Australian authorities view macroprudential policy as subsumed within the broader and more comprehensive financial stability policy framework.

The Australian framework for financial stability policy incorporates several features that have lent it flexibility and helped ensure its effectiveness. These include clear financial stability mandates for particular agencies; a structured inter-agency coordination process through the CFR; and a strong and cooperative relationship between the two agencies with explicit financial stability mandates. The Council's role includes the preparation of joint advice to the Government where action is needed that goes beyond the legislated powers of the constituent agencies.

In broad terms, APRA has responsibility for the setting of prudential standards and instruments and for supervision of institutions. The instruments available to the RBA in pursuing its financial stability objective include the use of its role as liquidity provider to the financial system and its regulatory powers in respect of the payments system, including oversight of clearing and settlement systems. The RBA also recognises that the setting of macroeconomic policies needs to be fully informed by financial stability developments, and financial stability assessments are regularly incorporated into the RBA reporting and decision-making processes (normally half-yearly).