EXPLANATORY STATEMENT
STATUTORY RULES 1987 NO 52
ISSUED BY THE AUTHORITY OF THE TREASURER
BANKING ACT 1959
BANKING (SAVINGS BANKS) REGULATIONS (AMENDMENT)
Section 71 of the Banking Act 1959 (the Act) empowers the Governor-General to make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed for carrying out or giving effect to the Act.
Section 37 of the Act provides that Regulations made under the Act shall include provisions for certain matters, including the investment of the funds of savings banks.
Sub-regulation 5(4) of the Banking (Savings Banks) Regulations formerly provided that a saving bank must at all times maintain an amount which is not less than 15 per cent of the amount on deposit in Australia with the savings bank in the following assets:
• deposits with the Reserve Bank;
• Treasury Notes;
• other securities issued by the Commonwealth;
• loans to authorised dealers in the short term money market secured by securities issued by the Commonwealth; and
• cash on hand in Australia.
The Government has decided that this ‘reserve asset ratio’ should be reduced from 15 to 13 per cent in order to provide savings banks with added flexibility in the investment of assets, including in the form of lending for housing. The change brings the reserve asset requirements of trading and savings banks closer into line. The Government has also decided that in the longer term the reserve asset ratio should be removed from the Banking (Savings Banks) Regulations and become part of the prudential arrangements administered by the Reserve Bank. This will be achieved through a further amendment to the Banking (Savings Banks) Regulations at a later date.
Detail of the amending Regulation is as follows.
The Regulation has omitted the existing sub-regulation 5(4) and substituted a new sub regulation. The essence of the change is that the figure of 15 per cent as the reserve asset ratio has been reduced to 13 per cent.
Overview
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1987 No 52, issued under the authority of the Treasurer, was enacted to amend the reserve asset ratio for savings banks as stipulated under the Banking Act 1959. This regulatory amendment aims to address the need for increased flexibility in the investment of assets by savings banks, thereby allowing for greater lending in areas such as housing. By reducing the reserve asset ratio from 15 per cent to 13 per cent, the amendment seeks to align the reserve requirements of savings banks more closely with those of trading banks, ultimately enhancing operational efficiency and responsiveness to market needs.
The changes were made in accordance with Section 71 of the Banking Act 1959, which empowers the Governor-General to establish regulations governing the investment of funds by savings banks. The objective of this regulatory amendment is to provide savings banks with the necessary flexibility to invest their assets more effectively, while still maintaining a level of financial stability and security, as stipulated under the Act. The amendment reflects the Government's intention to eventually remove the reserve asset ratio from the Banking (Savings Banks) Regulations and incorporate it into the prudential arrangements administered by the Reserve Bank, a transition to be achieved through further amendments in the future.
Scope and Application
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1997, issued under the authority of the Treasurer, pertain to the amendment of the Banking Act 1959. The Act applies to savings banks, which are financial institutions authorised to take deposits and make loans, and these amendments specifically affect the regulatory framework governing their reserve asset ratios. The regulatory changes are intended to provide savings banks with increased flexibility in their investment strategies, allowing them to engage more freely in lending activities, particularly for housing, by reducing the mandated reserve asset ratio from 15 per cent to 13 per cent. This amendment aligns the reserve requirements of savings banks more closely with those of trading banks, thus creating a more uniform regulatory environment across different types of banks. The regulation applies nationally, impacting all savings banks operating within Australia, and is an example of how the Commonwealth can adjust financial sector regulations to influence broader economic conditions. The changes do not currently extend to the removal of reserve asset ratios from the Banking (Savings Banks) Regulations; that significant shift is planned for future amendments, which will then transition the oversight of such ratios to the prudential arrangements administered by the Reserve Bank.
Key Provisions
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1997 (No. 52) primarily amend the reserve asset ratio requirements for savings banks as set out in the Banking (Savings Banks) Regulations. Under the original sub-regulation 5(4), savings banks were required to maintain a reserve asset ratio of 15 per cent. This amendment reduces that ratio to 13 per cent (Section 1). The amendment is made pursuant to the authority granted under section 71 of the Banking Act 1959, which allows the Governor-General to make regulations for carrying out or giving effect to the Act, and under section 37, which mandates the inclusion of certain provisions for the investment of savings bank funds (Section 1).
This new regulation imposes on savings banks the obligation to maintain a reserve asset ratio of 13 per cent of their deposits in Australia. The types of acceptable assets for this reserve remain unchanged and include deposits with the Reserve Bank, Treasury Notes, other securities issued by the Commonwealth, loans to authorised dealers in the short term money market secured by Commonwealth securities, and cash on hand in Australia (Section 1). This change is intended to provide savings banks with greater flexibility in their asset investments, particularly in the area of housing lending, and to bring the reserve requirements of savings banks more in line with those of trading banks.
Failure to comply with the amended reserve asset requirements could lead to regulatory action under the Banking Act 1959. While the specific penalties are not detailed in the Explanatory Statement, the Act generally provides for both civil and criminal penalties for breaches of its provisions. These can include fines, imprisonment, or both, depending on the nature and severity of the breach. The precise penalties would be determined by a court in the event of a prosecution under the Act.
The regulation also indicates that the government intends to further amend the Banking (Savings Banks) Regulations in the future to remove the reserve asset ratio requirements altogether and incorporate them into the prudential arrangements administered by the Reserve Bank. This suggests that the current amendment is a transitional measure towards a more integrated regulatory framework for bank reserves.