Custom-owned banks, building societies and credit unions could soon have access to billions of dollars in extra funding, following Wednesday’s announcement from Treasurer Scott Morrison that the Federal Government will wholly support the recommendations of the Hammond Review.
The review, which was commissioned by the Treasurer in March, was tasked with exploring the possibility of amending the Corporations Act in order to improve access to funding in the mutual banking sector - a sector which boasts roughly four million Australian customers.
In his announcement, Treasurer Morrison described mutuals and member-owned firms as providing a “real alternative” to the big banks, particularly in regards to customer service and satisfaction.
“As Treasurer, I want to see more competition and more options for customers, especially in banking and financial services. I want to see more competitive markets by putting customers at the centre,” he said.
“Until now our mutuals and coops have been under appreciated and ignored by our federal laws, placing them at a disadvantage to their much bigger competitors.”
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A change in the banking landscape
If the proposed changes go through, mutual institutions will be able to raise capital by issuing a new type of cooperative shares - though according to James Eyers of the Australian Financial Review, dividends would be capped and there would be no need for voting rights to be attached.
This is a departure from the current system, which prohibits cooperative banking institutions from raising capital in any way other than through retained earnings or debt - that is, unless they demutualise.
While cooperative banks would still be required to have enough funds at hand to meet short-term obligations to their customers, Mozo’s Head of Product Data Peter Marshall stated that access to new funding for customer-owned banks and credit unions could potentially make the overall banking sector more competitive.
“This decision could really change the face of the banking landscape in Australia. It gives mutuals much more scope to compete on an equal footing with the big banks, so I think they'll have a lot more flexibility in what they can do in the future,” he said.
“Though more funding doesn’t necessarily mean that the mutuals will be able to provide more competition, and we’ll have to wait to see if these reforms are actually implemented, I’d be surprised if that wasn’t what ended up happening.”
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