Is your bank rewarding you as much as they should for your loyalty?
New regulations to ensure financial institutions have enough liquid assets have responded with tightening rules when it comes to accessing your term deposit. These are one of the several changes that are likely to be implemented in the financial market.
Under the liquidity coverage ratio (LCR), banks and financial institutions are required to have enough funds to cover their assets for a month should there be a financial crisis.
Another suspected change is the reduction in interest rates for online saving accounts - this is because high interest accounts are expensive for banks to maintain and by reducing rates they will have more capital to cushion financial shocks.
The regulatory body responsible for implementing the changes are the Australian Prudential Regulation Authority (APRA). APRA’s responsibility is to oversee banks, credit unions, building societies and insurance organisations.
Under the new regulations, banks are now required to have enough liquid assets to survive 30 days of financial turmoil.
Some of bigger banks in Australia have already implemented the change, notifying customers that they will no longer able access their term deposits early in the last 30 days before it reaches maturity.
This comes as a problem for some investors, who need to be able to access their term deposits at short notice.
The change, which could put term deposits in positions less favourable by savers, means that hybrid products such as the notice saver (offered by both Rabodirect and Westpac) and flexible high interest savings accounts grow in popularity.
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Which banks have passed the changes so far?
- National Australia Bank
- Commonwealth Bank
- ING Direct
- Bank of Melbourne
It's important to note that all licensed and registered financial institutions in Australia will eventually need to pass on the changes.Back to top
Who decides on these new changes?
The new regulations apply to Australia and a handful of other economies who are part of the Basel Committee, and are part of the Basel reforms. The Basel Committee is a forum for banking and financial experts all over the world. It’s objective is to improve the qualities for bank supervision worldwide and has the following members:
- European Union
- Hong Kong SAR
- the Netherlands
- Saudi Arabia
- South Africa
- the United Kingdom
- the United States.
The Committee involves the world’s leading economies and sets global standards for the financial institutions in the listed countries. Typically, the aim is to avoid another Global Financial Crisis when banks in America and Europe didn’t have enough funds to facilitate withdrawals.
Under the new laws, banks are struggling to issue the correct product disclosure statements and training their staff about the new changes. The Australian Securities and Investments Commission (ASIC) has given the green light for the banks as long as they meet certain rules. These include renaming the product so it’s different to ‘term deposit’ and providing a written notice to consumers about the new 31 day notice requirement.