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Why Financial Deregulation?

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  • Ian R. Harper

Abstract

Over the past six years, financial markets in Australia have been deregulated almost completely. This article attempts to explain why Australia's financial markets have been deregulated and why financial deregulation has occurred so quickly. It suggests the answers lie in changed perceptions of the usefulness of regulation as a means to specific ends. Exogenous developments in the financial environment altered the impact of regulations on financial institutions. The result was a weakening in the competitive position of regulated financial institutions relative to unregulated financial institutions and direct financiers. This led simultaneously to a reduction in the ability of the monetary authorities to control the growth of total financing and a growing perception amongst regulated institutions that the costs of regulated status outweighed the benefits. The rapid demise of the regulations can be traced to the joint realisation by the monetary authorities and the regulated institutions that the regulations no longer served their respective ends. This conjunction of ‘public interest’ and ‘private interest’ in financial deregulation can in turn be traced to the unique ability of financial markets to generate close substitutes for existing financial products at low cost.

Suggested Citation

  • Ian R. Harper, 1986. "Why Financial Deregulation?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 19(1), pages 37-49, March.
    • Handle: RePEc:bla:ausecr:v:19:y:1986:i:1:p:37-49
    DOI: 10.1111/j.1467-8462.1986.tb00606.x
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    Cited by:

    1. Andrew Glyn, 1989. "Exchange Controls and Policy Autonomy: The Case of Australia 1983-88," WIDER Working Paper Series wp-1989-064, World Institute for Development Economic Research (UNU-WIDER).
    2. Chris Maher, 1989. "Information, Intermediaries and Sales Strategy in an Urban Housing Market: The Implications of Real Estate Auctions in Melbourne," Urban Studies, Urban Studies Journal Limited, vol. 26(5), pages 495-509, October.
    3. Martin, William J., 1990. "Public Choice Theory And Australian Agricultural Policy Reform," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 34(3), pages 203-203, December.
    4. Gordon de Brouwer, 1999. "Deregulation and Open Capital Markets: The Australian Experience Before Wallis," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 6(1), pages 51-68.
    5. Hugh Green & Ian Harper & Lachlan Smirl, 2009. "Financial Deregulation and Household Debt: The Australian Experience," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(3), pages 340-346, September.
    6. Warren Tease & Jenny Wilkinson, 1993. "The Provision of Financial Services – Trends, Prospects and Implications," RBA Research Discussion Papers rdp9315, Reserve Bank of Australia.
    7. Graeme Wells, 1990. "Economic Reform and Macroeconomic Policy in New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 23(4), pages 45-60, December.
    8. Jan-Egbert Sturm & Barry Williams, 2002. "Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia," CESifo Working Paper Series 816, CESifo.
    9. Tschoegl, Adrian E., 2002. "Introduction to the special issue," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(4-5), pages 291-297.
    10. Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July.

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