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.
Overview
The Banking (Savings Banks) Regulations (Amendment) Statutory Rules 1988 No 233, issued under the authority of the Treasurer, amended the existing regulations to reflect the government’s policy of removing the practical distinction between trading and savings banks. Enacted by the Australian Parliament, the amendments were made to align with the overarching policy objective of integrating the operations of savings and trading banks more closely. This legislative change aimed to provide greater operational flexibility for savings banks, allowing them to invest a larger proportion of their funds in non-traditional assets, while also simplifying the regulatory framework by aligning reserve requirements with those of trading banks.
Scope and Application
The Banking (Savings Banks) Regulations (Amendment) applies to savings banks operating in Australia, as amendments have been made to the existing Banking (Savings Banks) Regulations under the Banking Act 1959. These amendments aim to remove the practical distinction between trading and savings banks, allowing for greater flexibility in the operation of savings banks. The regulations cover the investment of funds by savings banks, including the maintenance of specified kinds of investments and cash on hand in Australia. The amendments allow savings banks to hold a larger proportion of their deposits in kinds other than those specified, increasing the ‘free tranche’ from six per cent to 40 per cent. Furthermore, the regulations remove the requirement for savings banks to maintain a reserve asset ratio of 13 per cent, aligning them with prudential arrangements administered by the Reserve Bank for trading banks. These changes extend the application of the Banking Act to savings banks, ensuring consistent regulatory treatment across the banking sector.
Key Provisions
The main operative sections of the Banking (Savings Banks) Regulations (Amendment) pertain primarily to the modifications in investment requirements and reserve asset ratios for savings banks. According to subregulation 5(2), savings banks must maintain investments in specified kinds that, together with cash on hand in Australia, equal at least the amount on deposit in Australia with the savings bank. This has been amended to allow savings banks to hold up to 40 per cent of their deposits in kinds other than those specified, as outlined in subregulation 5(2AA). Moreover, subregulation 5(4), which previously mandated a reserve asset ratio of 13 per cent, has been removed and is now part of the prudential arrangements administered by the Reserve Bank.
The amendments impose obligations on savings banks to maintain specified investments and reserves. Specifically, savings banks must ensure that their investments, in combination with cash on hand, do not fall below the amount on deposit in Australia. This includes adhering to the increased flexibility in the types of investments they can hold, as outlined in subregulation 5(2AA). Furthermore, savings banks are now subject to the prudential arrangements of the Reserve Bank, which include maintaining a prime assets ratio similar to that applied to trading banks.
The Banking (Savings Banks) Regulations (Amendment) does not explicitly outline offences, penalties, or civil/criminal consequences for breaches. However, non-compliance with the prudential arrangements administered by the Reserve Bank could potentially lead to regulatory scrutiny, fines, or other enforcement actions under the broader Banking Act 1959. The exact penalties for non-compliance with these prudential requirements would be determined by the Reserve Bank and could include financial penalties, restrictions on operations, or other regulatory measures deemed necessary to ensure the stability and integrity of the banking system.