Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Hansard source

I thank the Leader of the Opposition for this very serious question. I can inform the House that earlier this morning our time the US Federal Reserve announced that it would provide AIG, the American International Group, with an $85 billion emergency loan. In exchange, the US government will take a 79.9 per cent stake in AIG. The Australian government certainly welcomes the actions by the Federal Reserve, which, of course, have the full support of the US treasury. This announcement will provide much-needed support to AIG internationally and, of course, to the broader US market.

We do need to be very careful when we are commenting on the impact of these events on the Australian subsidiaries of AIG. We have to be very careful indeed. The relevant regulator, APRA, has strong prudential engagement with AIG—indeed, as it has all across the sector. The Australian businesses which are regulated by APRA are required to hold assets in Australia that exceed their liabilities in Australia. They are required to do that. But, nevertheless, because there could be flow-on effects, APRA is continuing to talk to the local subsidiaries. We do need to distinguish between the impacts on the international operations and on their Australian subsidiaries. The Australian subsidiaries are working within the framework that APRA has put out there.

The regulators are doing everything they possibly can to ensure that the events internationally have minimal impact on policyholders, whether they be general insurance or the life insurance component. That is what APRA is doing as we speak. Of course, we will continue to see further volatility on global markets. There will be companies in this country which are investors in the international operations of that company, so we might expect some impacts on companies similar to the impacts we have seen, for example, from those that were investing in Lehman Brothers.

What I can say—and I think this is very important and we should continue to shout it from the rafters—is that our banking system in particular is well regulated and it is well capitalised, as is our insurance industry. We have seen what happened in the past when that was not the case. That is why it is so important that we do put in a broader response to this international volatility that has been going on since last August. That is one of the reasons why the government committed to a financial claims scheme so promptly. That is why the government have been absolutely determined to implement all of the recommendations of the Financial stability review. We have been doing that. Part of that is encouraging firms with exposure to disclose those as quickly as possible and part of that has been to get a commitment to a financial claims scheme in this country should the worst happen to one of our deposit-taking institutions.

As many people in this House might well recall, there have been recommendations to a recommendation to the previous government about establishing such a scheme. In fact, the original recommendation for a financial claims scheme came from the HIH royal commission. The member for North Sydney would, of course, remember that. We have acted on that recommendation—something the previous government did not do and did not follow through on. I am pleased to say there has been bipartisan support for the Financial Claims Scheme that we have put forward. It is currently out there for industry consultation. It has been through the cabinet, and it will be going to parliament in the not-too-distant future.

Since August last year, and since we have been in power, we have been acutely aware of the danger to the Australian economy flowing from these events in international capital markets, and we have used every possible lever within our control to prepare our country to make sure that we can survive the situation in the best possible shape. It remains the case that, if you were in any country in the world in these circumstances, the country you would want to be in is Australia.

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