EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO 233
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 relating to the business of savings banks, including the investment of their funds.
The Government has decided to remove the distinction between trading and savings banks. A Bill to give effect to this and associated changes to the Statutory Reserve Deposit requirement is currently being prepared. Implementation of the policy of removing the practical distinction between trading and savings banks has commenced under the existing provisions of the Banking Act 1959, through amendments to the Banking (Savings Banks) Regulations.
Subregulation 5(2) of the Banking (Savings Banks) Regulations requires that a savings bank shall at all times maintain investments of specified kinds (such as loans for housing on the security of land, Commonwealth and State securities, deposits with banks and the Reserve Bank) that, together with cash on hand in Australia, are not less than the amount on deposit in Australia with the savings bank.
Subregulation 5(2AA) of the Banking (Savings Banks) Regulations, allowed savings banks to hold up to six per cent of deposits, being part of the amount governed by subregulation 5(2), in kinds other than those specified in subregulation 5(2). In order to allow greater flexibility in the operation of savings banks, this ‘free tranche’ has been increased to 40 per cent. This higher level is considered to remain consistent with the intention of section 37 of the Banking Act.
Subregulation 5(4) of the Banking (Savings Banks) Regulations provided that a savings bank should at all times maintain an amount which is not less than 13 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.
In 1987 the requirement contained in subregulation 5(4) - known as the reserve asset ratio - was reduced from 15 per cent to 13 per cent. It was foreshadowed then that this requirement should be removed from the Banking (Savings Banks) Regulations and become part of prudential arrangements administered by the Reserve Bank. Those arrangements currently include the application of a similar requirement, known as the prime assets ratio, to trading banks. With the disappearance of any substantial operational distinction between savings banks and trading banks it was appropriate, under the existing provisions of the Banking Act, to remove subregulation 5(4). The Reserve Bank has now brought this aspect of the operation of savings banks within the prudential arrangements which it administers.