A draft bill has been released today which will see customer owned banks able to write more loans and increase competition in the banking sector.
The draft bill, which is now under consultation, would amend the Corporations Act to add a definition of mutual banks and also lower barriers to raise capital by mutual banks, credit unions and building societies.
The CEO of the Customer Owned Banking Association, Michael Lawrence, welcomed the act saying it was “a historic reform”.
Lawrence said, “Customer owned businesses are particularly well placed to deliver competition and choice in banking because we naturally put the customer first. We are profit-making but not profit-maximising.
“We are not trying to squeeze our customers to please shareholders. We are not perfect but we are not conflicted about who we are working for.
“Access to capital, particularly regulatory capital, is critical to our sector’s capacity to compete and grow.
“Customer owned banking institutions have traditionally relied on retained earnings for their regulatory capital, supplemented to a limited degree by the issuance of capital instruments.
“Greater access to regulatory capital means that customer-owned banking institutions are able to grow more quickly and undertake important investments, while remaining well-capitalised.
“This allows our sector to write more loans and provide better quality services to current and prospective members. This will increase competition in the banking sector.”
The draft bill also recommends adding a definition of mutual banks to the Corporations Act.
Lawrence said, “Currently, mutual companies are not explicitly defined in the Corporations Act and the Corporations Act does not distinguish between mutuals and non-mutuals, except for the demutualisation provisions in Part 5 of Schedule 4 of the Corporations Act.
“These demutualisation provisions are to be retained for actual demutualisation proposals but are to be amended to make sure they don’t capture capital-raising proposals that do not change a company’s mutual identity.”
The announcement is the latest step in a process flowing from the 2016 Senate Mutuals Inquiry, the March 2017 Hammond Report on reforms for mutuals and the government’s 8 November 2017 policy announcement Backing co-ops, mutuals and customer owned banks to increase competition, and APRA’s 30 November 2017 Changes to the capital framework for mutual ADIs.
Lawrence added, “We will now consult with our members and other stakeholders on the draft bill and we look forward to seeing the legislation finalised and introduced into Parliament as soon as possible.”
Responses to the consultation are welcome from interested parties until 1 November 2018.
