Question

1.Summarise some of the recommendations of the Murray Inquiry into Australia’s financial system, and describe the changes that took place in terms of the capital structure of banks in 2015 as a result of the Murray enquiry recommendations.

2.Describe the various theories behind the term structure of interest rates, including a discussion of the assumptions on which they are based and their predictions for the shape of the yield curve.

3.Describe the features of the main types of deposit funding and non?deposit funding used by banks

Answer 1

Murray Inquiry provided several recommendations for the benefit of Australian financial system. Some of the main recommendations included the importance of capital rations and better efficiency from superannuation system of the country. Following are the main recommendations:

1. Increasing the bank capital level to ensure proper liquidity and for reducing the chances of bankruptcy. The global median rate is 10.5 percent while average Australian rate is at 9.1 percent.
2. The report also called for mortgage risk weights to be narrowed down, helping solve the issue of competitive distortion. It also recommends that the banks with less capital should increase their average risk weight to between 25 to 30 per cent.
3. The average current leverage ratio in Australia is between 4 percent and 4.5 percent. This needs to be brought down to 3 percent to be on the safer side.