What Is the Traditional Meaning of the Business of Banking - Essay Example

The Business of Banking Name: Institution: Tutor: Course Code: Date: The Business of Banking Introduction The banking business is an essential segment of the financial operations of any functional state. So far there are non-banking and banking organizations that serve the role of saving, credit and financial advisory among consumers. Often these institutions share the pattern of operation and objectives with very minute variations (Weston, 2012). The writing will define the business of banking and then describe the major banks and non-banking financial institutions in Australia. The business of banking refers to the business of getting money on current or deposit account, paying and collecting cheques drawn by as well as those paid in by customers. The banking business also entails the making of advances and includes such other business as the authority may prescribe. The business of banking may mean either receive money from the public money on current deposit, savings same to any other account repayable on demand or within less than 3 months, or with a period of call on notice of less than that period or Paying or collecting checks drawn by or paid by customers. Section 8 of the Banking Act 1959 limits a corporation from carrying any banking business in Australia unless it meets certain conditions. According to IBP (n.d), the Australian banking system is undergoing progressive deregulation and privatization. For instance, with the deregulation of the financial markets in the 1980s, foreign banks have been allowed to enter the market. In general, retail banks provide a wider range of financial services that include life and general insurance, and stock brokering and security underwriting to their retail customers. The banks also involve in making corporate and consumer loans. In 1992, the Australian government liberalized the banking system by abolishing limitations on the number of foreign bank licenses. The liberalization permits non-Australian banks to operate as branches to serve the whole market (Weston, 2012). However, the retail activity running can happen through a locally- incorporated subsidiary only. The Australian Prudential Regulation Authority (APRA), is a state body of the government of Australia. Additionally, it is the prudential regulator of the Australian financial services industry. The authority was set up on the 1st of July 1998 in response to recommendations of the Wallis inquiry. The authority and scope of APRA’S are determined under the Australian Prudential Regulation Authority Act, 1998. To perform its tasks and powers, APRA must balance the goals of financial protection and proficiency, rivalry, contestability and reasonable neutrality. The end product of such an act is in the promotion of financial system stability. According to The Financial System Inquiry (2014), Australia’s regulatory system is a legacy of the Wallis Inquiry’s functional approach to regulation. The regulators focus on particular outcomes across the system rather than particular sectors. The Australian Prudential Regulation Authority (APRA) specializes in prudential regulation of banking, insurance, and superannuation. The Australian Securities and Investment Commission (ASIC) comprises of a broader conduct and market integrity mandate over which it monitors, protects the consumers who receive financial services and goods. For example Landy1, (n.d.) states that the act ensures customers do not make outrageous decisions that may disadvantage them financially. The treasury department advises the government on stability, legislative and financial regulatory issues that are based in the financial sector. There is further Council for Financial Regulators (CFR) that works with APRA RBA and ASIC in making the financial system stable, efficient, coordinated and up -to -date. The Derivative Act makes sure that the Minster for Finance Services and Superannuation reports on trade carries out central financial clearance And executes commercial activities. Since the Wallis Inquiry, Australia’s regulatory system has undergone significant change. The overall approach to prudential regulation significantly changed in the wake of the collapse of HIH Insurance Limited in 2001.Additionally, there has been a stronger focus on developing tools for crisis management and resolution. APRA also acquired an additional active role in the superannuation sector. Furthermore, ASIC’s mandate has significantly expanded, assuming responsibility for regulating credit as well as financial market supervision. According to Organization for Economic Co-operation and Development, (2004), among the Non- bank financial organizations in Australia there are credit unions, building societies, & finance firms. On the ground, these institutions are numerous however they are significantly minor in scale. Their small scale emerges from the fact that they are regional centered or comprises a limited set of financial products (10% capital). Both Credit Unions and Building Societies are authorized to deposit-taking institutions (ADI's) with 2 % of domestic financial system assets, and they receive approval from APRA before the onset of retail deposits. Finance companies have mutual ownership structure and issue both consumer and business loans yet they do not accept deposits that aim in fund acquisition from the public. Though the services emerged in the mid-1800s, they had expanded by 1900s. Despite the growth, these firms remained small community- based organizations under the legislative jurisdiction of the relevant state. In 1970s building societies matured promptly as a result of strong demands for home possession, improved living standards, the approval of high ration mortgage lending and the slowness of customer needs a response from the banking sector. They are under Australian Stock Exchange (ASX) As Landy1 (n.d.) puts it, in the business code of conduct the banks must be highly confidential in their dealings with customers. Beyond it there is the Privacy Act whose principles regulate personal bank information applicable to Commonwealth Agency and private firms. The national Consumer credits to customers’ credit Protection offers leases and in both personal and residential property investment (Landy1, n.d.). In the bank section, there are criminals that have deemed the need for a regulatory unit. Australia banks rely on Anti-Money Laundering and Counter-Terrorism Act that identifies consumers’ diligence in their transactions whenever there are suspicious matters (Landy1, n.d.). According to Weston (2012), the Australian banking system is dominated by a few large banks each with a wide network of branches. The major financial institutions in Australia are the Reserve Bank, the trading banks, the savings banks, life insurance offices, finance companies, public and private pension funds, short-term money market dealers, building societies and pastoral finance companies. There are fifty-three banks in Australia, fourteen that are principally Australian owned. These banks have assets worth $0.17 billion to about $270 billion. Most of these banks are on the Australian Stock Exchange and consist of state government shares (BRA, 2006). There are seven major trading banks that include the Commonwealth Trading Bank, the Australia and New Zealand Bank Limited, the Bank of Adelaide, and the Bank of New South Wales. The other banks include Commercial Banking Company of Sydney Limited, the Commercial Bank of Australia Limited, and the National Bank of Australasia Limited. Among these banks, the four major ones have nearly $960 billion assets on their domestic books (Reserve Bank of Australia, 2006).Each bank also operates overseas particularly large in New Zealand. Additionally, there are other cheque-paying banks although they are not subject to the requirements of the Banking act or have fewer requirements to meet than major trading banks. The major trading banks have wide branch networks, and each operates as savings bank subsidiary. The Reserve Bank of Australia is the Australia’s central bank. It came into operation on 14th January 1960 by the Reserve Bank Act and the Banking Act. Division 2 of the banking act obliges the Reserve Bank to exercise its powers and functions for the safeguarding of the depositors of the banks that are subject to the Act (Weston, 2012). The bank is the single issuing authority for Australian notes and acts as an agent for the Treasury in the distribution of coin to banks. Although Bank advances are also made by the loan system, they are primarily made in Australia by the overdraft system under which a customer who is granted an advance is given a maximum limit to which he is allowed his current account at the bank. The trading banks are short-term lenders to individuals and business (Weston, 2012). Conclusion The overall data about Australian nonbank and banking sector clearly stipulates the importance of ethics, legal procedures and achievement of co-operating the world. From the legislative and local jurisdictional expectations, the banking section helps in savings, salaries, criminal investigations, financial advice and regulation of foreign banking investments. Non-banking operations have limited scope as compared to banking services yet all lie under APRA and other coordination groups such as ASIC, AD, and RBA. All in all, each unit contributes towards the financial position and management of the human activities in Australia. References Read More