Historic reforms to spur real competition in banking

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Release yesterday of a draft bill to lower barriers to capital raising by mutual banks, credit unions and building societies is a significant step forward in promoting competition in banking.

“We welcome this draft bill to amend the Corporations Act to increase our sector’s capacity to expand and take opportunities while staying true to our customer owned model,” said COBA CEO Michael Lawrence.

“This legislation will for the first time positively define the core elements of a mutual company in the Corporations Act.

“This is a historic reform and a welcome endorsement of the customer owned model.

“We congratulate the Government for backing our model and, subject to consideration of the draft bill, we look forward to bipartisan support for implementing legislative change.

“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.

“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,” Lawrence said. Today’s 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.

“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,” Lawrence said.

“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.”

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