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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
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