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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.

Analyses the transformations typical of financial globalization which have occurred in the financial markets over the past 25 years. Argues that banking crises arise when the active management of balances encounters currency mismatch problems; when credit is concentrated in certain sectors (for example, oil or real estate) or companies; when real interest rates are high during periods of lower economic growth; when leverage levels are high as a result of rapid privatizations or takeovers; or when there is a combination of these factors. (Original abstract - amended)

Analyzes the transformations typical of financial globalization that have occurred in the financial markets over the past 25 years & argues that banking crises arise when (1) the active management of balances encounters currency mismatch problems; (2) credit is concentrated in certain sectors (eg, oil & real estate) or companies; (3) real interest rates are high during periods of lower economic growth; (4) leverage levels are high as a result of rapid privatizations or takeovers; or (5) there is a combination of these factors. In the context of freedom of capital movement, the heavy concentration of sources of national & international liquidity in the hands of private operators has not led to a recovery in development financing, but instead promotes a new level of competition & denationalization on the part of development-financing systems. This strengthens conditions favoring the transfer of locally generated savings toward the return to be obtained from very short-term capital with high expected yields. At the same time, it fails to solve the problems of financial fragility caused by the differential between the return on these flows & increases in local productivity & profitability, the result being continual bankruptcies & liquidations of financial intermediaries. Stressed in conclusion is the importance of state monetary & credit management in bringing about a stable relationship between growth & interest rates. 17 References. Adapted from the source document.