Is the definition of a 'bank' changing?

In December 2010, the Australian Prudential Regulation Authority (APRA) released a statement saying it was conducting a review of the current guidelines for approval to use the term ‘bank’.⁸

Since 2000, APRA has allowed building societies and credit unions to use the adjective ‘banking’ to describe their financial business.⁸

Several Australian mutuals have adopted this convention. A major credit union, for instance, refers to itself as offering ‘customer-owned banking’, and another discusses the importance of ‘responsible banking’.

However, APRA recently stated that authorised deposit-taking institutions (ADIs) that meet certain criteria, will be able to use the noun ‘bank’ in their business name.⁸

As a result, various credit unions have put forward submissions to use the term in their official name.

Recently for instance, Queensland Teachers Credit Union (QTCU) lodged an application with APRA for consent to use the restricted term ‘bank’ subject to approval from their member base.⁹

On 22 June, QTCU announced on their website that 95.49% of members who voted, either by proxy or in person, supported the move for QTCU to change its name to QT Mutual Bank Limited.

So, why has this change come about?

Some argue that this trend is simply a reflection of what’s happening organically in the marketplace – and that a change in the nomenclature will help mutuals compete more effectively with the big banks, without losing any of their mutual principles.
 
It’s also believed that when it comes to making choices regarding personal finance, the term ‘bank’ is simply more relevant to, and widely understood by younger generations.

What is the difference?

Regardless of whether or not the term ‘bank’ becomes more widely applied, there does remain some notable differences between traditional banks and mutual banks.

Perhaps most importantly, mutual banks are owned by members. The profits from mutual banks are returned directly to members in the form of improved products and services – rather than to shareholders.

The second important consideration is more financial in nature. In recent years, mutuals have been able to provide lower and more competitive rates than the big banks – a factor which is attracting more and more members10. And with mutuals set to form an official fifth pillar on Australia’s financial landscape this is a trend that is set to continue.


8. http://www.apra.gov.au/media-releases/10_29.cfm. 9. http://www.qtcu.com.au/about-us/history-in-the-making [8th June, 2011]. 10. http://www.abacus.org.au/view-2010-media-releases/719-mutuals-drive-competition-in-banking.