To help educate consumers about the safety and competitiveness of mutual lenders, the Government will emphasise the similarities between banks, credit unions and building societies.
At present there are more than 20 credit unions and building societies that meet APRA’s authorisation guidelines on the minimum capital requirements for use of the term ‘bank’. If these institutions apply to use the word ‘bank’, APRA has advised that it will approve them quickly.
APRA will also conduct a review of the current guidelines for approval to use the term ‘bank’, and will provide the results of this review to the Government in March 2011.
The Government will take further action by putting the safety and competitive power of credit unions and building societies at the centre of its Bank on a Better Deal awareness campaign.
This will include the introduction of a new official ‘Government Protected Deposits’ symbol which will help consumers easily identify that mutuals are as safe as banks and support this critical funding source for our credit unions and building societies:
- Mutual credit unions and building societies meet the same high standards of prudential regulation as banks, as they are supervised by APRA.
- All deposits held with a mutual are backed by the Government’s Financial Claims Scheme — just like bank deposits.
The Treasury will also continue to actively facilitate the efforts of mutual credit unions and building societies to develop aggregated structures for mutuals to pool together and raise cheaper funding.
The Gillard Government believes strongly in the capacity of Australia’s mutual credit unions and building societies to provide a safe and competitive alternative to the big banks.
Australians can have absolute confidence in the safety of their money wherever their deposit is held. Some 4.5 million Australians are members of a mutual, but many others may not be aware of the critical role they play in putting competitive pressure on the big banks.
Mutuals account for around 9 per cent of new home loans, and offer discounts of up to 1 full percentage point to the standard rates offered by the major banks.
In fact, independent analysis by InfoChoice showed that borrowers could save over $30,000 over the life of their loan if they choose a credit union or building society. Mutuals are also collectively the fifth largest holder of household deposits in Australia.
Most importantly, as mutual organisations, credit unions and building societies always put their members first. They are not-for-profit lenders — so they put their profits back into cheaper interest rates, lower fees, and better customer service.
Many credit unions and building societies are not, under current law, able to use the term ‘bank’, even though they are a safe and competitive alternative to banks.
The Government’s reforms will help consumers to understand the critical role that mutual credit unions and building societies play in our financial system and our broader economy.