The office of the Minister for Revenue and Financial Services made a joint announcement with Treasury today to call for submissions regarding the removal of Subsection 66, which restricts smaller-scale ADIs from calling themselves a ‘bank’.
Currently, the use of the words ‘bank’, ‘banker’ and ‘banking’ may only apply to authorised deposit-taking institutions (ADIs) with Tier 1 capital exceeding $50 million.
The joint statement said the draft bill, titled Treasury Laws Amendment (2017 Measures No. 8) Bill 2017: amendment to section 66 of Banking Act), was part of the federal budget’s effort to “deliver a fairer and stronger financial system for Australians”.
“New entrants to the Australian banking market face a simple but significant obstacle – the prohibition on the use of the word ‘bank’,” the statement said.
“This acts to discourage innovative new players from entering the market, as the use of the term ‘bank’ can be key to their business model at the critical early phase of their development.”
The Customer Owned Banking Association (COBA) has already welcomed the move to level the playing field and congratulated the government on pushing to allow credit unions and building societies to also use the term ‘bank’.
COBA chief executive Mark Degotardi said, “It makes sense that all ADIs should be able to choose to use the term ‘bank’ to explain what they do – which is banking.”
“The historic restriction on use of the term bank by ADIs with more than $50 million in capital is out of date and no longer relevant.
“There are already 18 customer-owned banks providing competition and choice in the retail banking market. These former credit unions and building societies are likely to be joined by many of the 60 other customer-owned banking institutions currently trading as credit unions and building societies.”
The Australian Banker’s Association, which represents 25 major banks such as AMP, ANZ, Citigroup, HSBC, NAB and Westpac, also welcomed greater competition in the sector.
“Competition is vital to help customers find the best deals and the right financial products and services for their needs,” ABA industry policy executive director Tony Pearson said.
“Australia’s banks are trusted as a safe place to keep money. To ensure customer protection is maintained, it’s important that any lender which is called a bank is as safe as a bank, and subject to the same strong regulatory oversight.”
Submissions for the draft legislation are due in just under a month on 14 August 2017.
