Tutorial 4

Non-Bank Financial Institutions

14.1

What are the different types of nonbank financial institutions in Australia?

Non bank financial institutions in Australia include - Building societies, credit unions & finance
companies. By number there are far more of them then banks however they are significantly
smaller in scale, often regional based or in the case of finance companies offer a limited set of
financial products.
Both Credit Unions and building societies are authorised deposit taking institutions (ADI's)
and are approved by APRA to accept retail deposits. Finance companies issue both
consumer and business loans, however do not accept deposits form the public to obtain
funds.

14.4 What are (a) the major regulations and (b) the major regulatory bodies that
oversee building society and credit union operations? How do these regulations and
regulatory bodies affect them?
The primary regulator of finance companies is ASIC. However, this regulation does
not involve prudential supervision. After the financial crisis, indications are that
increasing attention will be paid to the operations of all providers of financial
services.
14.6

What are the major asset and liability accounts for credit unions?
For the credit unions, assets consist mainly of loans to members, and liabilities consist
mainly of member saving accounts.

14.12 How do finance companies differ from banks, credit unions and building
societies?
Finance companies cannot issue demand deposits. They cannot issue savings instruments
unless chartered as "industrial banks" under detailed regulatory guidelines. They are not
regulated for risk by APRA as ADIs are. As private firms that simply lend money, they are
regulated more for the sake of consumer protection.
They typically underwrite higher credit risks and longer maturities than depository institutions,
differentiate themselves in speed and convenience, and consequently charge higher interest
rates.

14.16 How can finance companies manage their interest rate, liquidity and credit
risks? What are their advantages or disadvantages over depository institutions?
For finance companies, liquidity management is more than just another operating
work stream; it goes to the heart of how they make money, grow their cash pile and
approve loans. Liquidity administration procedures are varied and involve cash flow
analysis, periodic receivable-payable reviews and the constant study of conditions on
credit markets.
Depository institutions are businesses which offer multiple services in banking and
finance
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Advantages:
Assists in managing finances and reaching financial goals
Protection from loss (insurance)
Opportunity to earn interest
Disadvantages:
May have to pay fees
May have required minimum balances
Sharing financial information

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