Essays on Reforms in the Australian Banking Industry Assignment

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The paper 'Reforms in the Australian Banking Industry' is a great example of a Finance and Accounting Assignment. Several banking reforms have been introduced in Australia’ s banking sector in the last five years (i. e. from 2007/2008 to date). This paper identifies the reforms and indicates that with the exception of the covered bonds reform, all the other reforms are suited to enhance the competitiveness of the banking industry in the country. The paper concludes by noting that encouraging new market entrants would enhance competition in the Australian banking sector. The reforms to the banking sector include: The National Consumer Credit Protection Act 2009 (Cth), which scrapped the exit fees requirement on home loans starting from July 2011.

Schedule 1 of the Act contains the National Credit Code, which is a replacement of the Uniform Consumer Credit Code (UCCC) (Australian Securities & Investments Commission (ASIC), 2013). This reform has opened the banking system (especially the mortgage dealing banks) for more competition as consumers now have the flexibility to switch to better deals offered by different banks. This legislative reform empowers ASIC to pursue and impose fines on lenders who re-badge the exit fees to prevent consumers from switching. The National Consumer Credit Protection Amendment Regulations 2011 set out a reform requiring lending institutions to provide consumers with standardized loan fact sheets by 1st January 2012.

According to Oriti (2010), the law makes it mandatory for banks to provide a one-page standardized fact sheet to potential borrowers, indicating the money one is required to pay in the course of the loan, and indicating where else the borrower can shop for home loans. According to Oriti (2010), the reform is meant to empower consumers by enabling them to make informed choices based on standardized terminology and transparent information provided by lenders. An amendment to the Trade Practices Act 1974, which has since been renamed as the Competition and Consumer Act 2010 brought about a reform that sought to wipe out anti-competitive behaviors among banks.

According to Oriti (2010), the new law prohibits banks from using the investment community networks or the media to signal intentions related to interest rates. The law also prohibits interest rates-related tip-offs of whatever nature and indicates that breaches to the law will attract penalties that equate to three times the benefit that a bank obtained from its conduct or 10 percent of the bank’ s annual turnover – whichever is greater.

The law puts a limit on how much penalties a lender can pay at $10 million. The banking reform package announced in December 2012 seems to empower consumers hence enabling them to get better deals from the banking sector (The Treasury 2013). The reform package further seeks to position small lenders “ as safe and competitive alternatives to the big banks” (The Treasury 2013, para. 2).

Lastly, the reform package seeks to secure the sustainability and long-term safety of Australia’ s financial system by creating an environment where small businesses and households can access fairly-priced credit from mainstream banks or from mutual banks. Notably, mutuals can now be referred to as banks, something that the Australian financial regulators made possible by making banking licenses accessible to more deposit-taking institutions. The Financial Claims Scheme (ADIs) Levy Act 2008 is a reform that makes it possible for the treasury to impose a levy on the liabilities of all authorized deposit-taking institutions (ADIs) for purposes of protecting depositors in case of ADI failure (APRA 2013).

The scheme provides a buffer for the Australian banking system against a potential crisis. The Banking Amendment (Covered Bonds) Act 2011 is an amendment to the Banking Act 1959, which introduced reforms into the banking industry by allowing banks and ADIs to start issuing covered bonds as of 17 October 2011. According to Frydenberg (2011), covered bonds “ allow banks to diversify away from unsecured debt source” and into secured debt sources acquired from the Australian market.

Depositors can make claims via the bank to a pool of assets that are used to secure the bond. Previously, banks and ADIs would not issue covered bonds because they were not consistent with the provision of deposit holders in the Banking Act 1959. Credit card reforms that took effect from 1 July 2012 based on the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth) paved way for new requirements that require banks and other credit card issuing financial institutions to provide customers with key fact sheets before signing a contract with them; abide by restrictions governing offers made to customers with a view of increasing their credit limits; notify customers who exceed their credit limits and abide by restrictions governing the interest rates, charges, and fees charged on credit cards; and abide by requirements made in relation to applying customers’ payments (Association of Corporate Counsel 2013).

References

APRA 2013, ‘Financial claims scheme’, viewed 25 September 2013, .

Association of Corporate Counsel 2013, ‘A facelift for Australia’s credit card laws’, viewed 25 September 2013, .

Australian Securities & Investment Commission (ASIC) 2013, ‘National credit code’, viewed 25 September 2013, https://www.asic.gov.au/asic/asic.nsf/byheadline/Consumer-Credit-Code?openDocument.

Bouris, M & Joye, C 2012, ‘Our banks too big to fail, too few to be competitive,’ The Drum, viewed 25 September 2013, .

Frydenberg, J 2011, ‘Banking amendment (Covered Bonds) bill 2011’, Speeches, viewed 25 September 2013, .

Oriti, H 2010, ‘New government banking reforms’, Donavan Oates Hannaford Lawyers, viewed 25 September 2013, .

Scholtens, B 2000, ‘Competition, growth, and performance in the banking industry,’ 1-14, viewed 25 September 2013, .

The Treasury 2013, ‘Competitive and sustainable banking system’, viewed 25 September 2013, .

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