Hon. J.B.

HOCKEY
Treasurer
SPEECH - BLOOMBERG
SYDNEY
TUESDAY, 16 SEPTEMBER 2014
Check against delivery.
Thank you for the invitation to speak to this summit about the critical
work Australia is undertaking through its Presidency of the G20 this year.
Obviously things have changed a great deal since ! was here "ust over
twelve months ago as Opposition Treasury spokesman. #one the least
there have been signi$cant changes in the global economy the
investment environment and in the geopolitical landscape.
The world is di%erent and so is the need for appropriate policy responses.
This year the G20 &inance 'inisters and (entral )ank Governors have
changed the direction of their discussions. *e are now more focused on
delivering "obs and growth.
Almost si+ months ago at our $rst meeting in ,ydney the G20 was able to
agree on an unprecedented ambition to boost global growth by an
additional two per cent by 20-.. (ommentators and critics were
skeptical about putting a number on our collective ambitions but the
agreement was made.
The changes in the economy over the last few months have made the "ob
harder but it has not diminished our collective resolve.
!n fact in discussions with fellow $nance ministers it has become clear
that the depth of determination to earn growth through new policy
reform is more necessary now than ever.
*hether we reach the two per cent or not / the G20 is committed to
promoting further growth and to creating more "obs.
*e must recognise however that $scal stimulus has in many cases
reached the limits of its manageable capacity.
*e must also recognise that there is in the main limited capacity for
monetary stimulus as well.
,o growth over the longer term must be earnt through policy reforms
such as deregulation of trade and labour markets fairer competition
policy and ta+ and trade reform.
The $rst priority is to meet head on the e+isting demand for new and
upgraded infrastructure.
Given that governments simply do not have the budgetary capacity to
match the massive demand for new capital we must turn to the private
sector to $re up its enormous cash reserves to fund new investment in
roads rail ports and energy and water production.
This partnership will help to create millions of new "obs and will boost
the productive capacity of the global economy.
The second priority we have is to apply the principle that multinational
companies pay ta+ where they earn their income.
*e are determined to improve the integrity of the global ta+ system by
addressing the erosion of our collective ta+ base through work
undertaken by the O0(1. !n addition we are supporting a (ommon
2eporting ,tandard for the automatic e+change of $nancial information.
,o that no country is left behind we will all work together to help
emerging economies with their participation in these initiatives.
3adies and Gentlemen it will be some time until we have a benign
economic environment in which to implement reform.
4ust last night the O0(1 released downgraded growth forecasts for a
number of countries including the 5nited ,tates 4apan &rance and
Germany as well as the 0uro area.
At the same time and consistent with the G20s 2 per cent growth
ambition the O0(1 noted that structural reforms are essential for strong
and sustainable growth.
!n its concluding remark the O0(1 said6
The continued failure of the global economy to generate strong
balanced and inclusive growth underlines the urgency of ambitious
reform e%orts. (OECD Interim Economic Assessment Sept ! "##$.%
*ell we all agree.
To address a matter close to the collective hearts of this audience ! will
today address the lingering and essentially unresolved issues relating to
$nancial sector reform and stability.
)ecause of the ongoing potential impact of $nancial instability the G20
continues to prioritise its work on $nancial regulation.
The G207s $nancial regulation agenda driven by the &inancial ,tability
)oard 8&,)9 is critical in addressing the fault lines revealed by the
global $nancial system.
3et7s not forget the ma"or disruption which we e+perienced in 200.
which led to the global $nancial crisis. !t led to the unpopular but
necessary need for many governments to bail out $nancial institutions
using ta+ payer funds.
!n response the &,) along with other standard setting bodies such as
the )asel (ommittee on )anking ,upervision and the !nternational
Organisation of ,ecurities (ommissions has set about e+ecuting the
mandate we set.
Our focus in the G20 this year has been to bring to completion the
priority 200. policy initiatives that remain unresolved.
Building resilient fnancial institutions
As a result of previous decisions banks are now generally better
capitalised.
Through )asel !!! strong li:uidity arrangements are in place and an
agreement has been reached on a backstop to prevent the build;up of
e+cessive leverage in the banking system 8leverage ratio9.
Together new capital and li:uidity re:uirements will make banks more
resilient to short;term disruptions.
!n the lead up to the G20 3eaders 'eeting in )risbane in #ovember we
are working to deliver consistency in the treatment of risk weightings
applied to bank assets.
The )asel (ommittee will present a plan to help the market better
understand how risk weightings are applied across "urisdictions.
!n addition the &,) will establish a backstop to better manage longer;
term funding risks for banks 8net stable funding ratio9.
Ending too-big-to-fail
*e have also identi$ed global banks and insurers that are so large
comple+ and interconnected that their failure can cause signi$cant
dislocation in the $nancial system disruption to the global economy and
risk massive ta+payer losses.
*e have applied additional capital re:uirements to 2< globally
systemically important banks and the &,) will be considering new
proposals known as T3A( or total loss absorbing capacity which protect
ta+payers from serious loss should these banks fail.
The &,) has also made good progress on a basic capital re:uirement for
systemically important insurers which will be presented to 3eaders at
the )risbane ,ummit.
*e will also $nalise the process for how we identify other systemically
important $nancial institutions such as $nance companies and hedge
funds by the )risbane ,ummit.
Address shadow banking risks
Our work has also focused on ensuring that shadow banks that is entities
that perform bank;like functions do not become a new source of systemic
risk.
,ince 200. we have developed a plan for regulating and monitoring this
sector / this has involved careful scrutiny of securitisations money
market funds banks7 e+posure to the shadow banking sector and
securities $nancing markets.
This is an area we will continue to look at closely given the possible risks
associated with lending activity moving from the more heavily regulated
banking sector to the shadow banking sector.
! should add that there is recognition that more onerous regulation can
drive more lending activity towards unregulated entities. *e must be
mindful that e+cessive regulation is the enemy of free capital =ows.
Making derivatives markets safer
The $nancial crisis highlighted structural de$ciencies in the over the
counter derivatives market and the systemic risk it posed for the wider
economy. )anks and other market participants in many cases did not
know their own risk e+posures let alone those of their peers and
regulators did not have the information needed to re;establish trust
between them.
,ince 200. we have progressed reforms to mitigate risks in these
markets by improving transparency and through greater use of
collateralisation and central counterparties.
As the world continues to transition from the most acute phase of the
Global &inancial (risis our focus will naturally turn to the
implementation monitoring and impact assessment of these $nancial
sector reforms.
This transition will be supported by two initiatives6
&irstly the &,) is consolidating its work on monitoring
implementation and impacts of the reforms into an annual report /
this will help assess the e%ectiveness of the reforms and determine
whether any unintended conse:uences have emerged.
,econdly the &,) and international standard setting bodies will
outline their processes for policy development and post
implementation reviews.
This is e+pected to enhance the community7s understanding of the work
these bodies do and how they e+ecute the mandates we have set them. !t
is e+pected that it will also help build and maintain support for their
work by demonstrating the intense processes that they undertake.
Although growth is generally e+pected to strengthen in 20-> it is clear
that decisive reforms are needed across G20 economies to boost
potential output and help ensure that growth is more balanced.
This is why the importance of our e%orts this year cannot be
understated.
(ome the )risbane ,ummit every G20 member will present a
comprehensive listing of their new policy actions to lift growth and
create "obs.
And the support and leadership of international organisations and
engagement groups in the development of these products will make them
all the more robust.
3adies and gentlemen
'eaningful reform is never easy.
Governments and regulatory agencies around the world are asking
participants in the $nancial system to continue to deliver the change
necessary to strengthen our capital =ows.
This collective e%ort will make our markets more transparent and our
banks more robust.
! am con$dent our meeting in (airns in the ne+t few days will continue
the "ourney for reform.
As a result our communities will gain the very real bene$t of more
economic growth and more "obs.
5ltimately it is the only successful formula that delivers greater
prosperity across the globe.
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