You can bank on the emergence of more banks

Expect more banks to spring up in Australia as a result of the Federal Government moving to remove the restriction on the use of the descriptor “bank” currently restricted to authorised deposit-taking institution (ADIs) with Tier 1 capital exceeding $50 million.

The Government move has been outlined by the Treasurer, Scott Morrison who stated the objective was to drive more competition in the banking system and remove impediments to innovative new players.

The explanatory memorandum accompanying the Government’s legislative proposal claimed the move would “create a more level playing field in the banking sector”.

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However it also pointed to the likelihood that the Australian Prudential Regulation Authority (APERA) would continue to prohibit some ADIs from calling themselves banks such as purchase payment facilities.

The explanatory memorandum makes clear that the lifting of the restriction on the term “bank” will not lead to open slather, stating that non-ADIs would only be granted such a benefit in “very rare and unusual circumstances”.

Commenting on the move, Morrison claimed the restriction on the use of the term “bank’ by ADIs had acted “to discourage innovative new players from entering the market, as the use of the term ‘bank’ can be key to their business model at the critical early phase of their development”.

“The restriction on ‘bank’ may also lead the public to mistakenly believe that small banking businesses differ from the larger players in terms of regulatory protection,” he said. “The fact is that all ADIs are subject to the prudential regulator, APRA's, prudential framework.”

“Likewise, deposits at all ADIs are protected by the Government’s Financial Claims Scheme guarantee,” Morrison said. “That is why the Turnbull Government has announced that it will lift the prohibition on the use of the word 'bank'.”

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