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Financial Institutions And Social Transformations

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A banking license is described as a legal prerequisite that is required to any financial institution and that wants to run a business on banking. Moreover, a particular business is not considered as a bank, if it does not hold the banking license (MacDonald, van Oordt and Scott 2016). Therefore, it can be said that for establishing a bank or a banking business, a financial institution should possess the banking license. However, the rules, regulations and policies as well as the requirements and the method for applying for the banking license vary from one country to another. In this essay, the requirements and the methods for applying for a banking license in the country Australia have been highlighted.

Analysis of the Structure of the Current Financial System in Australia 

It has been found that the economy of Australia has ranked 15th based on its size and the nation have around 1900 entities, which are registered in the ASX (Australian Securities Exchange). The market capitalization of the organizations is about US $ 900 billion (Saunders and Cornett 2014). From detailed study, it can be said that the structures of the Australian financial system changes continuously over the period in relation to the economic innovation and modifications in both economic environment and authoritarian structure. As per the history of Australian financial system, the operations of the Reserve Bank of Australia were started in the year 1960 in the month of January and this is responsible for the evaluation of the banking system in future (Gennaioli, Martin and Rossi 2014). It can be analyzed that the key reason for strengths of the structure of financial system of Australia are APRA and ASIC ( 2017). These help to follow the prudential integrity objectives and corporate rules independently and on the other hand, these also assist in considering adequate account of distinctive perspectives of others. It has been found that APRA is offered with overall powers regarding the process of licensing and is involved in the process of figuring fiscal declarations throughout the structure of laws that have been created for it (Flannery 2016). On the other hand, it has been found that ASC has been named as ASIC and it has taken the responsibility for integration in the market and protection of the customers in the insurance and superannuation zones and payment features and banking system.

From detailed analysis, it can be said that the overall current financial system of Australia is in a good condition. Moreover, the profitability of the Australian Banks is at a high level and the presentation of the assets of the banks has improved continuously and has been driven by the loan portfolio of the business. Additionally, the housing lending performance of the country remains quite strong and certain concerns related to the mortgage portfolios of the banks have decreased from the previous financial stability review (Board 2014). However, the risks have been found to be more pronounced, even all the risks are still manageable in certain regions. Based on detailed analysis, one of the major risks include the probability of occurring large losses for lending an amount to the developers of residential property and portfolios of commercial properties of banks. Additionally, the resource-associated disclosures of the banks have symbolized signs of stress; however, all these signify a little amount of share of overall disclosures (Ueda and Di Mauro 2013). Moreover, the vulnerabilities within the worldwide economy pose a risk towards the bank and this involves the banks of Australia with international coverage. It has been found that the largest international coverage of the Australian banks is to New Zealand and in this region high mortgage debt as well as fast increase in housing prices has increased the risk level. This might include a price correction that can negatively influence the asset quality of the banks. On the other hand, with constant decrease in the prices, probability of defaults increases. Moreover, deterioration in the worldwide risk sentiment might increase the expense of wholesale funding (Elyasiani, Mester and Pagano 2014). On the contrary, it has been found that in present days, banks face discriminating risks in certain regions; their flexibility to unfavorable shocks has risen considerably through intensification of the liquidity position and capital. Particularly, the capital positions of the chief banks have shifted above the minimum requirements of regulations. Furthermore, in the current situation, the profitability of the LMIs (Lenders Mortgage Insurers’) has been decreased as some of the banks of the country have shifted to offshore insurers and the high volume loans of LVR (Loan-to-Valuation) get reduced with respect to standards of lending (Knights and Tinker 2016).


Structure of and Developments in the Current Australian Banking Industry

The banking industry of Australia is dominated by mainly four organizations i.e. about 85 % of the total value of domestic home loan. These organizations include – National Australia Bank (NAB), Westpac (WBC), Commonwealth Bank (CBA) and Australia and New Zealand Banking Group (ANZ). In total, all these firms possess market cap of more than $ 400 billion in together and have assets equivalent to five times of the total properties of the left behind banks, various financial organizations and mutual funds (Babb and Kentikelenis 2017). The particular market is highly competitive and the high concentration of the power of market through a few numbers of organizations can be connected to a kind of oligopolistic behavior. However, the banking sector of Australia has one key barrier for entering into any market. This include the market power level that the present “big name players” possess. Therefore, it can be said that the pre-existing supremacy is considered as the largest obstacle to the entrance for the new competition. Technically, the Big Four are separate firms but the most of the shareholders as well as the proxy members of these banks are same i.e. fund managers and large international banks.

The international regulatory efforts mainly highlights on the incorporation of the agreed reforms of post-crisis and increased the assessment of their effects. In addition to the effort of post-crisis reform, the recent regions attract the international attention that involves the potential risk that is related to the industry of asset management. Therefore, its effect on the liquidity of the market as well as the economic constancy incorporations of various innovations in fiscal technology can be understood (Da Gbadji et al. 2015). In addition to these, the domestic authorities progress their work on incorporation of the formal response of the government, the recommendations of Financial System Inquiry and internationally agreed reforms to the final report of the FSI. The internationally regulatory developments and Australian response include – “addressing too big to fail”, “shadow banking”, “building resilient fiscal institutions” and “FMI Regulation” ( 2017).

Historical Provisions

In the year 1988, APRA introduced the first set of Basel standards called ‘Basel I’ and was also implemented in the same year. In the earlier period, a set of international regulations of banking was used to incorporate by the Basel Committee on Bank Supervision (BCBS). Moreover, this helped to set out a minimum requirement of capital for financial institutions including banking industry of Australia (Rossi, Gennaioli. and Martin 2013). The aim of this particular regulation was to minimize the credit risk.


Current Provisions

The quality as well as the quantity of the capital of the Australian banking industry has found to rise considerably for last two years. This occurred due to the global financial crisis of the year 2008 as this has prompted both the regulators and the markets for reappraising the perspective on satisfactory levels and capital forms ( 2017). Moreover, the international and the domestic regulatory bodies have found to propose various changes to the present capital regulations. Due to the effect of financial crisis in Australia, the domestic regulators promote resilience in the banking industry through the specification of a minimum quantity of capital, which the banks should possess and kind that capital should consider. It has been found that the APRA prepares and enforces the regulations that generally govern the adequacy of capital of the banks of Australia (Bhagat, Bolton and Lu 2015). The present regulations of the banking industry of Australia are considered as a traditional application of the newest set of standards regarding international capital that have been issued by the BCBS (Basel Committee on Banking Supervision).

Moreover, this can be collectively called as ‘Basel II’ and these standards were incorporated after the global financial crisis in 2008. It has been found that the newer standards mainly put emphasis on the risk measurement and the definition of capital. From detailed study, it can be said that the regulatory capital of any bank of Australia is the summation of its ‘Tier 1’ and ‘Tier 2’ capital and net of all particular ‘deductions’ (Edey and Gray 2017). The former Tier is comprised of funding sources, where a bank can allocate the losses freely without generating bankruptcy. Moreover, Tier 1 involves retained earnings and ordinary shares. On the other hand, the Tier 2 capital of the Australian banks is composed of funding sources, especially those rank below the depositors of the bank and other creditors (senior). Finally, it can be said that both the Tier 1 and Tier 2 capital are measured through net of reductions that are adjustments for features that deduce the loss assimilation capabilities of capital.             

Opportunities and Structure for Other Foreign Bank in Australia

Australia is considered as a revolving door for the banks, especially for the international banks. Therefore, the foreign banks get an opportunity to run their business continuously in the financial market of Australia. In addition to this, the international banks generally do not provide the investors with similar income stream like other banks of Australia. Moreover, the exchange rate is another factor, due to which most of the international banks intend to operate their business in sector of banking system in Australia. Furthermore, it has been found that the APRA has also authorized various representative offices for the internal or foreign banks with the aim that this facility will help the global banks to maintain their operations in Australia. In other words, it can be said that the intention of APRA behind this is that to develop and maintain a permanent establishment of the global banks in the economic market of Australia (ABC News 2017).

It has been found that prior to the Great Depression in Australia, the regulation for operation of foreign bank was very tight and it was impossible for any foreign bank to run its business in Australian market. Moreover, it can be said that until 1980s, it is almost unfeasible for any foreign bank to develop its branches in Australia ( 2017). However, the scenario has changed at present, Australian financial market has become feasible for operating foreign banks. Therefore, the government of Australia make it must for all foreign banks who wish to run its banking business permanently in Australia to obtain a banking authority. This is issued by the APRA as per the Banking Act of the country. In addition to this, the government of Australia has also provided an alternative way for those foreign banks who does not want to attain a banking authority in the nation by operating a representative office in the particular market for liaison purpose.


Risks faced by a Foreign Bank at the time of starting a new operation in Australia

The main risks that are faced by most of the foreign banks at the time of starting a new operation in the financial market of Australia include – the political, economic and business risks. These three are the most common and major risks for any foreign bank that wants to start its banking business in any overseas countries. The political environment is very effective and thus has effective influence on the operation of a new business. Moreover, the enhancement of the business as well as its popularity depends on the political influence ( 2017). In addition to this, a healthy and spontaneously growing financial market is considered as a necessary requirement for running a banking business successfully, as financial crisis in the particular market might affect the operation of the business. Lastly, the business risk also effects the operations of the banking system as the particular business model (including the interest risk) helps any banking business to run successfully.    

Official Requirements and Best Practice for obtaining banking license in Australia

In Australia, an institution that seeks to regulate prudentially within the country as an ADI (authorized deposit-taking institution) is needed to be authorized as per the Banking Act 1959. It can be said that APRA (Australian Prudential Regulation Authority) is liable for authorization procedure. Opined to the Section 5 of the particular Act, both making of advanced money and taking of deposits along with it the other fiscal activities as per the regulations are made as per the specified Act. The Backing Act is responsible for all the corporations to perform banking business in Australia. Thus, ADIs are closely supervised by APRA and this needs ADI to align with the wide range of requirements that are constituted within the Prudential Standards. Moreover, it provides ample information to the APRA under the standards of reporting. Therefore, APRA has many powers that it can practice and does not align with the ADI (Edey and Gray 2017).

The prudential framework of APRA is comprised of holding capital. The applications for authorization follow the guidelines of ADI Authorization. The institutions want to apply for the authorization require to fulfill the below steps. These include – a primary consultation among APRA and the applicant for discussing the plans of the applicant regarding running a banking business within the nation. Secondly, a draft application and along with it relevant information should be submitted as per the detailed information of Authorization Guidelines. Lastly, application review by APRA and this involves meeting with the applicant’s senior officers ( 2017). Opined to the guidelines, the applicant should pay a licensing fee and this is considered as the subject to a yearly administrative levy. In general, the routine for the licensing procedure totally depends on the depth as well as the quality of the material that is served by the applicant. Additionally, the ability of the applicant is to meet the requirements of APRA from the first day.



Therefore, based on the above detailed study and analysis, it can be said that the bodies of Australia and the government of the country are comprised of ARPC and ASIC. Moreover, these are dedicated to the perfect model of the monetary regulation. In addition to these, it has been found that the government of the particular country has implemented Basel II instead of Basel I in later year (since the year 2008), especially after the occurrence of global financial crisis in order to operate the banking industry of Australia successfully. This change in the regulations of the banks in Australia has attracted more numbers of clients and thus the demand of banks has also been increased recently. In addition to these, the Australian government has identified further better structure as well as financial system for enhancing the banking industry and for this the prudential regulation of the organization has been implemented. Furthermore, the responsibility for disclosure of the regulation and market regulation regarding fiscal products or services also attracts more clients to banks of Australia. Therefore, it can be said that the Brilliant Bank that is headquartered in New York should start its operations of banking system in the market of Australia.



ABC News. 2017. Five key challenges facing Australian banks. [online] Available at: [Accessed 21 Jan. 2017]. 2017. Pages - How to apply for an ADI authority. [online] Available at: [Accessed 21 Jan. 2017]. 2017. [online] Available at: [Accessed 21 Jan. 2017].

Babb, S.L. and Kentikelenis, A.E., 2017. International financial institutions as agents of neoliberalism. The SAGE handbook of neoliberalism. Thousand Oaks: SAGE Publications.

Bhagat, S., Bolton, B. and Lu, J., 2015. Size, leverage, and risk-taking of financial institutions. Journal of Banking & Finance, 59, pp.520-537.

Board, F.S., 2014. Guidance on Supervisory Interaction with Financial Institutions on Risk Culture: A Framework for Assessing Risk Culture. Financial Stability Board, Basel, April.

Da Gbadji, L.A.G., Gailly, B. and Schwienbacher, A., 2015. International analysis of venture capital programs of large corporations and financial institutions. Entrepreneurship Theory and Practice, 39(5), pp.1213-1245.

Edey, M. and Gray, 2017. The Evolving Structure of the Australian Financial System. [online] Available at: [Accessed 21 Jan. 2017].

Elyasiani, E., Mester, L.J. and Pagano, M.S., 2014. Large capital infusions, investor reactions, and the return and risk-performance of financial institutions over the business cycle. Journal of Financial Stability, 11, pp.62-81.

Flannery, M.J., 2016. Stabilizing large financial institutions with contingent capital certificates. Quarterly Journal of Finance, 6(02), p.1650006.

Gennaioli, N., Martin, A. and Rossi, S., 2014. Sovereign default, domestic banks, and financial institutions. The Journal of Finance, 69(2), pp.819-866.

Knights, D. and Tinker, T. eds., 2016. Financial institutions and social transformations: International studies of a sector. Springer. 2017. [online] Available at: [Accessed 21 Jan. 2017].

MacDonald, C., van Oordt, M. and Scott, R., 2016. Implementing Market-Based Indicators to Monitor Vulnerabilities of Financial Institutions. 2017. [online] Available at: [Accessed 21 Jan. 2017].

Rossi, S., Gennaioli, N. and Martin, A., 2013. Sovereign Default, Domestic Banks, and Financial Institutions. The Journal of Finance, 69(2), p.9.

Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education.

Ueda, K. and Di Mauro, B.W., 2013. Quantifying structural subsidy values for systemically important financial institutions. Journal of Banking & Finance, 37(10), pp.3830-3842.

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