THE banking regulator would gain the power to sack the boards of foreign-owned banks operating in Australia in times of crisis, under sweeping new proposals released by the government.
The $1.4 trillion superannuation industry could also face tougher restrictions, with the proposed rules giving regulators the ability to remove trustees or directors who threaten stability.
Under current rules, foreign banks cannot accept retail deposits of less than $250,000 via branches, and are mostly confined to wholesale markets and commercial lending.
While the Australian Prudential Regulation Authority can take control of foreign banks that do take retail deposits, such as HSBC and Citi, it does not have the power to appoint its own management to foreign banks that focus on other markets.
A discussion paper published by the Treasury yesterday said this represented a gap in the law, with the sector accounting for almost 10 per cent of the assets in the Australian banking system.
The extra powers would only be used in serious circumstances. Most of the time, APRA expects it would be able to rely on the local management following its instructions without the need for the board to be replaced.
But it said there was a risk that in times of crisis it may need extra powers because its orders could be ignored.
"There is a growing recognition internationally that foreign ADIs [authorised deposit-taking institutions] have the potential to transmit financial shocks to the host system in which they are operating," the discussion paper said.
Of the 48 foreign banks in Australia, the Treasury said 39 were operated through a branch structure, with $297.6 billion in assets. The remaining nine, with $110.6 billion in assets, operated as subsidiaries of global companies.
The paper also suggested wider powers for the supervision of super and insurance.