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Disadvantages of Credit Unions Explained

Non-bank financial institutions in Australia include building societies, credit unions, and finance companies. Credit unions and building societies are authorized deposit-taking institutions regulated by APRA, while finance companies issue loans but do not accept deposits. The primary regulator of finance companies is ASIC, whereas APRA oversees building societies and credit unions. For credit unions, major assets are loans to members and major liabilities are member savings accounts. Finance companies differ in that they cannot issue demand deposits or regulated savings instruments and are regulated more for consumer protection than prudential risks. Finance companies manage liquidity, interest rate, and credit risks through cash flow analysis, receivable-payable reviews, and monitoring credit markets.

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10 views2 pages

Disadvantages of Credit Unions Explained

Non-bank financial institutions in Australia include building societies, credit unions, and finance companies. Credit unions and building societies are authorized deposit-taking institutions regulated by APRA, while finance companies issue loans but do not accept deposits. The primary regulator of finance companies is ASIC, whereas APRA oversees building societies and credit unions. For credit unions, major assets are loans to members and major liabilities are member savings accounts. Finance companies differ in that they cannot issue demand deposits or regulated savings instruments and are regulated more for consumer protection than prudential risks. Finance companies manage liquidity, interest rate, and credit risks through cash flow analysis, receivable-payable reviews, and monitoring credit markets.

Uploaded by

tiara000
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

DAI YUTING (4399080) Group: D PSB, UOW, FIN111

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. UOW FIN 111 Tutorial 4 Page 1

Depository institutions are businesses which offer multiple services in banking and finance 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

UOW FIN 111 Tutorial 4

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