BANKING AMENDMENT (KEEPING BANKS ACCOUNTABLE) BILL 2009

i Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009

Contents

Short title ............................................................................................ 1

Commencement .................................................................................. 1

Schedule(s) ......................................................................................... 2

Schedule 1--Amendme nt of the Banking Act 1959

Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009 1

A Bill for an Act to amend the Banking Act 1959 to

keep banks accountable in setting mortgage interest

rates, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Banking Amendment (Keeping Banks

Accountable) Act 2009.

2 Commence ment

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009

Commencement information

Column 1

Column 2

Column 3

Provision(s)

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day on which this Act receives the

Royal Assent.

2. Schedule 1

The 28th day after the day on which this Act

receives the Royal Assent.

Note:

This table relates only to the provisions of this Act as originally

passed by both Houses of the Parliament and assented to. It will not be

expanded to deal with provisions inserted in this Act after assent.

(2) Column 3 of the table contains additional information that is not

part of this Act. Information in this column may be added to or

edited in any published version of this Act.

3 Schedule(s)

Each Act that is specified in a Schedule to this Act is amended or

repealed as set out in the applicable items in the Schedule

concerned, and any other item in a Schedule to this Act has effect

according to its terms.

Amend ment of the Ban king Act 1959 Schedule 1

Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009 3

Schedule 1

Amendment of the Banking Act

1959

1 After Division 2C of Part II

Insert:

Division 2D--Movements in mortgage interest rates

18B Objects of Division

(1) While commercial banks in Australia are the beneficiaries of a

substantial public guarantee of funds supporting their private

profitability, the Parliament intends that those banks should act in

accordance with the public interest.

(2) Accordingly, the objects of this Division are:

(a) to give effect to the expectation that banks will set mortgage

interest rates in line with movements in official interest rates;

(b) to require banks to explain any decision to set interest rates

contrary to movements in official interest rates;

are contrary to the public interest;

(d) to enable the Treasurer to revoke the public guarantee of

funds applying to any bank which sets its rates in a manner

which is contrary to the public interest.

18C Effect

This Division ceases to have effect at the same time as the

Financial Claims Scheme ceases to have effect.

18D Interpretation

(1) In this Division:

amount, in relation to a change in interest rates, is measured by the

number of basis points.

bank means an ADI to which Division 2AA applies.

Schedule 1 A mendment of the Banking Act 1959

4 Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009

Financial Claims Scheme means the financial claims scheme for

account-holders with insolvent ADIs provided for by

Division 2AA.

movements in official interest rates are the changes in the cash rate

targets announced from time to time by the Reserve Bank

following meetings of its Board.

official interest rate means the cash rate target announced by the

Reserve Bank.

standard variable interest rate has the meaning given in

section 18E.

(2) Determinations and other instruments made by the Treasurer under

this Division are not legislative instruments.

18E Standard variable inte rest rate

(1) For the purposes of this Division, a bank's standard variable

interest rate is the rate advertised by the bank as its standard

variable home loan or mortgage interest rate.

(2) If the Treasurer considers that a bank does not advertise a rate that

meets the definition in subsection (1), the Treasurer may, in

writing, nominate one of the bank's advertised interest rates as the

bank's standard variable interest rate for the purposes of this

Division.

18F Application to bank interest rate decisions

(1) This section applies to a bank, in relation to its decisions in setting

its interest rates, if:

(a) within 5 business days of a reduction in official interest

rates--the bank fails to reduce its standard variable rate by at

least the same amount, or at all; or

(b) at any time--the bank increases its standard variable rate,

other than in response to an increase in official rates; or

rates--the bank increases its standard variable rate by more

than that amount.

Amend ment of the Ban king Act 1959 Schedule 1

Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009 5

(2) For the purposes of this section, successive movements in a bank's

standard variable rate announced or occurring within a period of 5

business days are taken to be one movement in rates.

Example: A reduction in rates of 15 basis points on Monday followed by a

further reduction of 10 basis points on the following Friday is taken to

be a single reduction of 25 basis points.

18G Explanation of bank decisions

(1) If section 18F applies to a bank the Treasurer may, in writing,

require the bank, within a specified period, to explain its decisions

in setting its interest rates.

(2) If the bank fails, within the specified period, to provide an

explanation which is satisfactory to the Treasurer, the Treasurer

may do either or both of the following:

(a) declare that the bank's decisions in setting its interest rates

are contrary to the public interest;

(b) direct the bank, in writing, to set its standard variable rate at a

different rate before the end of a specified period.

18H Treasurer may determine financial guarantee no longer applies

(1) If the Treasurer:

(a) has declared that a bank's decisions in setting its interest

rates are contrary to the public interest; or

(b) has made a direction to a bank under paragraph 18G(2)(b)

with which the bank fails to comply;

the Treasurer may determine, in writing, that the Financial Claims

Scheme will cease to apply in relation to that bank from a specified

time.

(2) Division 2AA ceases to apply in relation to the bank from the time

specified in the determination made under subsection (1).

(3) If the bank subsequently complies with a direction made under

paragraph 18G(2)(b), or if the Treasurer is satisfied that it is in the

public interest, the Treasurer may make an instrument revoking a

determination made under subsection (1).

(4) If the Treasurer revokes a determination relating to a bank in

accordance with subsection (3), Division 2AA applies in relation to

Schedule 1 A mendment of the Banking Act 1959

6 Banking Amendment (Keeping Banks Accountable) Bill 2009 No. , 2009

the bank from the time the revocation is made, or from another

time specified in the instrument.

18I Treasure r may request information

(1) The Treasurer may give APRA, ASIC or the Reserve Bank a

written request for advice or information about a matter relevant to

making a determination under this Division (including a matter

relating to the affairs of a bank).

(2) As soon as reasonably practicable after being given the request,

APRA, ASIC or the Reserve Bank as the case may be, must give

the Treasurer the advice or information about the matter.

(3) In making a decision about a determination, the Treasurer must

take into account the advice and information (if any) that he or she

has been given. This does not limit what the Treasurer may take

into account in making the decision.

Commonwealth of Australia Bills

BANKING AMENDMENT (KEEPING BANKS ACCOUNTABLE) BILL 2009