AUSTRALIA is safeguarded from the worst of the global financial markets because of the strength of the nation's big four banks, according to KPMG partner Kevin Smout.
AUSTRALIA is safeguarded from the worst of the global financial markets because of the strength of the nation's big four banks, according to KPMG partner Kevin Smout.
The risk advisory services partner said because the big four were among only 20 banks in the world to remain AA rated, Australia was "reasonably insulated" from the financial turmoil gripping global markets.
He said Australia was relatively safe because its lending practices were more stringent than in the US.
However, Mr Smout's comments came when it emerged last week that the big four - Commonwealth, NAB, Westpac and ANZ - signed a Lehman Brothers credit default swap auction in New York, called the 'Lehman CDS Protocol'.
While analysts are unsure whether the banks were sellers or buyers of credit default swaps, WA Business News understands that the Leman Protocol relates to settlement issues concerning Lehman Brothers Holdings, which filed for Chapter 11 bankruptcy protection in September.
The International Swaps and Derivatives Association said the protocol was designed to address the settlement issue relating to credit derivative transactions referencing Lehman.
"The protocol will offer institutions the ability to amend their documentation for various credit derivatives transactions in order to utilise an auction scheduled for October 10 2008 to determine the final price for certain Lehman obligations," ISDA said on its website.
Mr Smout said while global financial markets had led to the fall of many major banks, Australia was well placed, particularly if recommendations handed down by federal Treasury's financial services and credit reform 'green paper' became policy.
"With what's been happening in the global financial markets, banks are being downgraded all the time," Mr Smout told WA Business News. "So that really says a lot about how strong our financial systems are and how strong our banks are, to have four rated so highly."
Released in June, the green paper was devised by the federal government to ensure a clear, simple and standard approach to regulating financial services and the more sophisticated products they offer, such as collateralised debt obligations.
Mr Smout said the paper does not give the complete answers to tightening lending practices, but rather recommends benchmarks to provide consistency in the regulatory regimes governing certain aspects of financial services.
A major issue emanating from the sub-prime mortgage crisis in Western Australia has been that churches, charities and councils, many of which bought CDOs provided by Lehman Brothers, did not fully understand the complex high-risk products they were buying.
"Because these institutions are seen to be sophisticated, at this wholesale level you don't require the same level of product disclosure [as retail]; you don't need the same level of advice and you don't have to do a statement of advice," Mr Smout said.
"You would over-burden the market with regulation if you had to sit down with every bank and professional service person that needed a statement of advice and disclosure of these different products at this level.
"So what this green paper essentially does is it creates a standard for the type of information ASIC would expect and bridges the gaps in the existing regulatory framework."
