Regulatory ‘shock absorbers’ will limit downturns: Westpac

WESTPAC’S Rob Whitfield is confident the world is unlikely to experience a downturn of the same extent as 2008.

WESTPAC’S institutional banking head, Rob Whitfield, is confident the world is unlikely to experience a downturn of the same extent as the 2008 global ­financial because of “shock ­absorbers” put in place by regulators and policymakers around the world.

In a speech to the World Economic Forum in Tianjin, near Beijing, Mr Whitfield yesterday said he believed that governments now had more experience in how to handle looming systemic financial market risks and that while markets could face a “correction”, the fallout would not be as damaging as the GFC.

“It is true to say that the most recent global financial crisis has caused the largest drop in economic activity and the greatest ­impact to global growth in recent times,” he said.

“But another financial crisis like the one we have just witnessed, and in many ways are still recovering from, is not inevitable.

“The most recent crisis was not a truly global event. There were still a number of countries whose central banks understood the signals and were proactive to protect themselves against the full impact of the financial crisis. Canada, Australia and China are examples of this.”

Mr Whitfield said central banks were now better prepared and had stronger balance sheets to help deal with systemic problems that might emerge in the next few years.

“We have made decisive progress and consequently our ability to withstanding serious shocks is much stronger. I believe effective shock absorbers now exist for the regulated sector,” he said. “Supervision has improved and is ­increasing.

“Regulators are better prepared and are far more co-ordinated than ever before. Couple this with the new capital and liquidity regulations, as well as government and regulatory jawboning, and the result is a much more robust financial system.”

In his speech, Mr Whitfield said there was a growing risk that financial markets could experience a correction, especially as money flowed into the world’s major equity indices.

“I predict a future market correction, perhaps even a meaningful one,” he said. “This wall of liquidity has had a profound ­effect on financial markets. Not enough has found its way into the real economy and this has in turn created a global hunt for yield.”