Functions of Australian financial institution 3
Lending and depository functions4
Insurance and pension funds services.5
Creating and providing ownership for financial claims..6
Conclusion..7
Bibliography.8
Introduction
The financial system in Australia is composed of set of arrangements that cover both lending and borrowing of funds and transfer of ownership of the financial claims. This financial system have a number of sectors that include credit unions, banks, and building societies all of which are called financial institutions or Authorized Deposit taking Institutions. The other sectors include insurance, payment systems, superannuation, and financial markets. The financial institution in Australia is resilient, sound, and well managed. It is worth noting that Australia is among few advanced economies that avoided the recession during global financial crisis. One of the factors that contributed to this was the country’s banks and other financial institutions, which performed well. It is also interesting to note that the performance of these banks and other financial institutions has continued to improve.
Functions of Australian financial institution
This essay focuses on the functions of the three major Australian financial institutions that include depository institutions, contractual institutions, and investment institutions. The country’s banking system remains strong. In recent months, there has been a decline in the wholesale funding cost pressures since there has been an improvement in the global market sentiment. These financial institutions and in particular banks continue to strengthen their funding, capital, and the liquidity positions. Thus, this has made them to improve their resilience to the future shocks or the market turbulence periods. Due to capital positions strengthening over the recent years, the Australian financial institutions and especially the banks have been well placed to meet Basel III minimum capital requirements, which Australian Prudential Regulation Authority have initiated. Australian financial institutions perform various functions depending on their categories. These financial institutions are in fact responsible for distributing financial resources in planned ways to potential users.
Lending and depository functions
Lending and depository services are among the major functions of the Australian financial institutions. Starting with the lending activities, these activities are grouped into 4 types of lending. These include personal, housing, leasing, and commercial. In terms of personal finance, the Australian credit cooperatives, banks, finance companies and other lenders lend money to people for their own non business or personal use. This includes the personal loans and credit card facilities but excludes the secured housing finance.
The other type of lending by these financial institutions is housing lending. The Australian government recognizes the importance of housing. Housing satisfies individual’s essential needs such as security, shelter, and privacy. In the national economy, the Australian government recognizes the significance of housing that includes increasing the investment levels, employment rates, building activity, and the interest rates. Therefore, the government encourages these financial institutions to provide housing loans to its citizens. In fact, the Australian government in 1920s moved to provide the financial assistance for the access to the home ownership for low income and moderate groups. In recent times, the financial institutions have been encouraged to provide these funds. The financial and trading enterprises, individuals and public authorities, governments, and nonprofit organisations are also given lease finance and commercial finance for business and investment purposes by the Australian financial institutions.
Apart from lending services as explained above, the Australian financial institutions provide depository services. These services are provided by depository corporations that are included in Reserve Bank of the broad money measure of Australia. These corporations are the main deposit taking institutions in Australia, banks being the largest ones. All these corporations are authorized to operate by Banking Act 1959. The major or pillars of Australia’s financial system account for above total assets of all the nation’s banks. These pillars include Commonwealth bank, Westpac, ANZ, and National Australia bank. They provide extensive retail branch network and widespread banking services throughout the country. There are various financial institutions and smaller banks like credit unions that also provide depository services throughout the country. These financial institutions are trust companies, credit cooperatives, money market corporations, cash management trusts, and finance companies.
Insurance and pension funds services
The other function that the Australian financial institutions perform is insurance services. The life insurance corporations in the country offer investment policies and termination policies. Termination insurance includes payment of certain amount of money on insured who is receiving permanent disability or on death of the insured. In addition, the investment products include superannuation plans and annuities.
The life insurance industry in the country consists of thirty two direct insurers, including six reinsurers. With banking industry, life insurance industry is actually dominated by few extremely large companies that hold majority of industry’s assets. The Australian life insurance companies are essentially supervised by the Australian Prudential Regulation Authority under Life Insurance Act of 1995. This body also regulates the friendly societies that offer similar services to the life insurance corporations.
Apart from the insurance services, these financial institutions also offer pension funds. These pension funds have actually been established to provide the retirement benefits. Individuals make contributions when they are working and after retirement receive their benefits in form of savings. The financial institutions in Australia provide two basic contribution types. These are voluntary members’ contributions and employer contributions in form of superannuation guarantee. For a pension fund to receive concessional taxation treatment, it needs to be selected so that it can be regulated under Superannuation Industry Act of 1993. Pension funds with the Australian financial institutions are supervised by either ATO or APRA.
A number of public sector funds in the country are relieved from direct supervision by APRA. However, they are supposed to report to the APRA under the agreement between Commonwealth government and every territory and state government. The self-managed superannuation funds forms the largest group of the Australian pension funds. Apart from the pension funds, there are corporate funds that were established for benefit of employees working in a particular entity. Additionally, these financial institutions provide public sector funds that benefit the government employees.
Creating and providing ownership for financial claims
The other function that the Australian financial institutions perform is creating and providing the ownership for the financial claims. The financial markets are the ones that specifically perform these functions. The functions of the Australian financial institutions like commodity markets, stock exchanges, and options exchanges are vital for the Australian economy. In addition, these financial institutions are responsible for maintaining the liquidity in market and managing the price change risks.
The stock markets are the mechanisms for trading equities or shares, options, units in trusts, and various fixed assets securities. They also provide money market securities. The Australian financial markets also provide bonds. These bonds are essentially issued with the original terms to the maturity of 1 or more years. Investors are thus paid a coupon or a set periodic interest for the bond life and in addition receive their initial investment back at the maturity period. Therefore, this provides the investment opportunities and aide the businesses to generate their funds for many purposes including engaging themselves in various types of investments.
Conclusion
In a nutshell, the Australian financial institutions perform the above discussed functions and others under the supervision of the Australian Prudential Regulation Authority. This authority ensures that they conform to the set standards. This is the reason why the country’s financial institutions have been successful in their activities.
Bibliography
Lewis, M., & Wallace, R. H. (2000). The Australian financial system. South Melbourne, Australia: Longman Cheshire.
