The Australian Prudential Regulation Authority (APRA) has amended banking rules for the first time in favour of mutuals. This will give credit unions, building societies and mutual banks more flexibility to issue regulatory capital instruments while retaining their structure.
Earlier this month the Business Council of Co-operatives and Mutuals (BCCM) of Australia highlighted the importance of mutuals in financial service delivery. In a submission to the Australian Government’s Financial System Inquiry, the BCMM emphasised how in a strong and competitive financial system mutuals play a crucial role in increasing diversity and growing the Australian economy.
The document questions the assumption that Australia has a competitive and diverse financial services sector with effective competition in the market.
In Australia the four banks account for over 80% or total lending and almost 90% of home lending. Yet, according to the BCCM, a number of mutual banks, credit unions and building societies often offer very competitive rates compared to these big four banks. The BCCM also suggested banks made consumers aware of their ownership of sub-brands.
Melina Morrisson says the BCCM welcomes these changes given that they go towards a better environment for co-operative banks to be able to compete fairly and hence support more diversity in the financial sector.
"The BCCM hopes that the collaborative voice of the whole co-operative and mutual sector in Australia, has helped to raise awareness of the need for corporate diversity to ensure effective competition takes place in all markets including the market of financial services," she said.
The Customer Owned Banking Association (COBA) also said the changes are a step towards better accommodation of the customer owned banking model.
Under the Basel III agreement, customer owned banking institutions were confronted with a much-reduced capacity within the new rules to issue regulatory capital instruments.
“This was because the rules were designed for large, listed banks and not for customer owned banking institutions”, explained COBA chief executive Louise Petschler.
She said the APRA had worked with COBA to solve this problem the changes represented significant progress.
“Recognition of the customer owned model alongside the listed bank model is important for competition and customer choice."
She added that while the change was an excellent first step, COBO would continue to work with the APRA and other regulators on further accommodation of the customer owned model.
“We want competitive neutrality and a fair go for our model. Our submission to the Financial System Inquiry makes the case that diversity in banking is a strength for the financial system and contributes to stability,” Ms Petschler said.
