Major Banks in Australia and Their Regulatory Regime - Essay Example

Business of Banking Name Institution Business of Banking Introduction The Australian financial systems encompasses a set of arrangements involving borrowing and lending of money and the transfer of ownership involving financial claims (Lipscombe and Pond, 2002). The Australian financial system has various sectors including the banking institutions and the non-banking institutions. Participants in the Australian financial system include the commercial banks, cooperative societies, insurance companies, finance companies, credit unions to name a few (Lipscombe and Pond, 2002). The major banks found in Australia are referred as the pillar of the country’s financial system and they include the Commonwealth Bank, Westpac, Australia and New Zealand Banking Group and the National Australia Bank. The various non-bank financial institutions found in Australia include the Credit Unions and the Finance Companies. Financial regulatory regime in Australia is split between the Australian Prudential Regulatory Authority and Australia Securities and Investments Commission (Berg, 2008). The responsibility and duties of ASIC is to ensure market integrity and client protection and the regulation of banks and finance companies (Hart and Tindall, 2009). On the other hand, the responsibility and duties of APRA is to supervise and licence Authorised-taking Institutions and general insurance companies. All financial institutions regulated and guided by APRA are required to report to APRA (Berg, 2008). Investment banks not operating as ADIs are not regulated or guided under the Banking Act subject to the supervision of APRA. This paper will highlight the traditional definition of business of banking and will describe the major banks and non-bank financial institutions found in Australia and the regulatory regime each operates on. Business of Banking Business of banking often varies from one nation to another and has both judicial and statutory definition (Lipscombe and Pond, 2002). Business of banking can be termed as the collection of capital by receiving loan deposits and using the received money by lending it in some terms as required. This is referred as reservoir definition. In addition, business of banking can be described as carrying out of business of accepting fund deposits on current account subject to withdrawal by cheque or order (Alan and Beatty, 2000). This definition overlooks requirements for lending. Withdrawal using cheques and draft by order incorporates a third-party payment facility (Lipscombe and Pond, 2002). Also, business of banking can be described as accepting and collecting of capital and cheques from the clients, honouring cheques drawn by clients when presented for payment and keeping current accounts in the books where credit and debits are entered. The statutory definition of business of banking entails the process of receiving money on deposit account or current account. It is also the act of taking money on deposit and making advances on capital (Berg, 2008). The business of banking also contains activities guided by the Banking Act Section 2 prescribed by the Australian Banking Act. It is also the act of carrying out payments for clients through payment processes such as ATM and telegraphic transfer (Alan and Beatty, 2000). Additionally, business of banking can also mean borrowing money through accepting current accounts deposits by issuing debts securities such as bonds and banknotes (Alan and Beatty, 2000). Such banking activities are possible by making instalment loans and investment in debt securities. A customer borrowing money overdraft from financial institution constitutes business of banking (Weaver and Kingsley, 2001). This was seen in the case of Commonwealth Bank and Melbourne Corporation. With regard to Commissioners of the State Savings Bank of Victoria and Permian Wright and Corporation Limited case, business of banking included the act of collecting money by getting deposits on loans and capital collected by lending the amounts as required. Nevertheless, the 1966 Banking Regulations was revised in order to extend the business of banking concept. This was done in order to reduce the confusion that came up due to deficiency in theoretical framework for ‘purchased payment facilities’. Major Banks in Australia and their regulatory regime Australia has a well-capitalised and accurate banking system. The banking institutions are considered large by international standards with a well retail support and developed organisation facilities. Commonwealth Bank The Commonwealth Bank of Australia is a multinational bank with branches across Fiji, United States, New Zealand and the United Kingdom (Aroney et al., 2015). It is referred to as Commonwealth Bank as it provides various financial services such as retail, fund management, insurance, broking services and business banking among other services. The bank has increased over the years by acquiring Bank of Western Australia in 2008. The bank was founded in 1911 and is one of the big four Australian banks together with National Australian Bank, Westpac and ANZ (Tyree and Weaver, 2006). The bank was founded by a number of regulations and laws such as the Banking Act, the Australian Prudential Regulation Act and the Payment system Act. In addition, the subsection 7(1) of the Commonwealth Bank Act built a new body called the Commonwealth Banking Corporation. The Commonwealth Bank of Australia is chaired by the governor who selects the Board for various terms. The Commonwealth Bank Act together with the Banking Act validates the Bank’s power and authority with regard to the organisation and management of monetary and banking policy (Aroney et al., 2015). The National Australia Bank The National Australia Bank is among the major banks found in Australia and is very large on the basis of market capitalisation and consumer base. It was ranked 21st leading banks worldwide with regard to market capitalisation and 41st with regard to total assets in 2014. The bank has 1,771 branches and 4,578 ATMs serving 8.3 million customers. National Australian bank is regulated by the Banking Act section 11 (Blundell, Atkinson and Lee, 2008). The banks also follow the privacy policy for customers’ information and other pre-sets. The bank respects the rights of clients to privacy in accord to the Commonwealth Piracy Act 1988 (Tyree and Weaver, 2006). Also, the bank is regulated by the 1974 legal requirement for registration guided by the Financial Corporation Act. According to the act, the submission of statistics is made to the Reserve Bank of Australia in accord to 2001 Corporation Act. Principally, the National Australia Bank is established as a company that holds Australian Financial Service Licence. The core regulatory regime body of the National Australia Bank is the APRA that offers financial services to it including funds management through subsidiaries. In addition, the bank is report to the Counter-Terrorism and Anti-money Laundering Financing Act (Blundell, Arkinson and Lee, 2008). The bank monitors clients using a risk-based approach through compliance program and reports. Non-banks financial institutions and statutory regime Non-bank financial institutions are financial bodies that lack full banking licence thereby cannot accept deposits of any kind from the public (Ledgerwood, 2014). Needless to say, the Non-banks financial institutions facilitates and institute alternative financial services and assistance to the customers such as financial consulting, cheque cashing, broking, pooling of risks to name a few. Non-bank financial institutions are considered a source of customer’s credit. The major non-bank financial institutions include the Credit Unions that handle deposit taking, credit offering and housing loan finances and the Finance companies including the insurances and the building societies. Cuscal Credit Union Cuscal is an Australian credit union Authorised Deposit-Taking Institution that offers transactional banking, products and services to its customers. It was instituted in 1992 by the name of Credit Union Services Corporation Limited but changed name to Cuscal in 2005. Cuscal is governed by APRA together with ASIC (Worthington, 2004). The organisation has a good relationship with RBA and APCA and operates under banking regulatory guidelines which assist in extenuating the threats and representing a foundation in the global financial service sector. Also, the institution is guided by the SSAs and AFIC that regulate that it and have portfolio accountability in their authority (Worthington, 2004). The bodies also make standards coordination of Cuscal and other Credit Unions. GIO insurance GIO insurance company is an Australian insurance provider especially for home and motor. The company offers products like cars and homes, business, public liability and worker compensation. The company was founded in 1927 by the government Insurance Office (Tarr, 2001). The company offer protection through pooling of risk from highly unpredicted predicaments. GIO insurance is regulated by 1973 insurance Act that regulates the performance and operation of its businesses through a system of approval. Also, the life Insurance Act 1995 is responsible for registration and coordination of the insurance company. Corporation Act also supervises the brokers and insurers by providing financial services (Schich, 2008). The APRA supervises the Insurance Act and the Life Insurance Act and the ASIC is accountable for non-prudential regulatory features of the Acts (Schich, 2008). Conclusion The Australian financial system entails a number of sectors including the banking institutions and the non-banking institutions. Business of banking varies from one country to another. The major bank institutions include the National Australia Bank, The Commonwealth Bank of Australia, Westpac and Australia and New Zealand Banking Group. The major non-banks include the Credit Unions and the Finance Companies. The financial institutions operate in accordance with some set regulatory regimes. The National Australian bank is regulated by the Banking Act section 11, and the Financial Corporation Act. The Commonwealth Bank is regulated by the Banking Act, the Australian Prudential Regulation Act, the Payment system Act, and the commonwealth Bank Act. For the non-bank financial institutions, Cuscal has a good relationship with RBA and APCA and operate under banking regulatory guidelines and the SSAs and AFIC that regulate the institution and have portfolio accountability in their authority. Whereas GIO insurance is regulated by 1973 insurance Act, life Insurance Act, Corporation Act and the APRA supervises the Insurance Act and the Life Insurance Act and the ASIC is accountable for non-prudential regulatory features of the Acts. References Alan, L. T. and Beatty, A. (2000). The Law of Payment Systems. Sydney: Butterworth. Aroney, N., Gerangelos, P., Stellios, J. & Murray, S. (2015). The Constitution of the Commonwealth of Australia. Cambridge Port Melbourne, Vic: Cambridge University Press. Berg, C. (2008). The growth of Australia's regulatory state : ideology, accountability and mega-regulators. Melbourne: Institute of Public Affairs. Blundell-W. A., Atkinson, P. & Lee, S.H. (2008). ‘The Current Financial Crisis: Causes and Policy Issues’, OECD Financial Market Trends, vol. 2, 11-31. Hart. & Tindall, K. (2009). Framing the global economic downturn crisis rhetoric and the politics of recessions. Acton, A.C.T: ANU E Press. Ledgerwood, J. (1999). Microfinance handbook an institutional and financial perspective. Washington, D.C: World Bank. Lipscombe, G. & Pond, K. (2002). The business of banking. Canterbury: Chartered Institute of Bankers. Schich, S. (2008). ‘Challenges related to Financial Guarantee Insurance’, OECD Financial Market Trends Volume 1, pp. 81-113 Tarr. (2001). Information disclosure : consumers, insurers and the insurance contracting process. San Jose CA: Authors Choice Press. Tyree, A. and Weaver, P. (2006). 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