Report on Australian Financial Institutions

This report provides an overview of the different types of financial institutions in Australia and their services. It also focuses on the performance of a major bank, the Commonwealth Bank of Australia, and discusses the term structure of interest rates in the country.

Running head: ECONOMICS 1
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Report on Australian Financial Institutions
AS per the classification of the reserve bank of Australia, there are basically three types of
financial institutions and they include among others; the funds and insurers managers, Non
ADA financial institutions and the authorized Deposit taking institutions. The authorized
deposit taking institutions (ADIs) are under the 1959 banking act as explained in the
prudential regulation authority of Australia. The authorized deposit taking institutions just
like banks are subject to similar standards of prudential. Example of authorized deposits
taking institutions includes credit unions, Building societies and Banks. All of which are
under the APRA supervision. The authorized deposit taking instructions offer various
services that are financial in nature in the various economic sectors like insurance and
management of funds , they also provides payment services to members, housing or person
loan and others(Viney &Phillips,2015).
The fund managers and insurers comprises of friendly societies, common funds, trusts of
cash management, public unit trusts , health insurance organizations or companies,
superannuation and approved deposit funds, Life insurance organizations and General
insurance companies. The institutions under the insurers and fund managers are supervised
by the APRA, ASIC and state and authorities. The insurance and fund managers offer super
annulations products, provide disability, life and accident insurance, Basing on fiduciary
basis for example, life insurance companies are able to manage assets which are most put in
debt and equity secures. Equities, Government securities, deposits and loans are where
most assets are commonly invested by General insurance.
On top of that, General insurance offers employer's liability, property and motor vehicles
insurance (Viney &Phillips, 2015). Employer’s contributions are accepted and at the same

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time managed by the superannuation funds. The trustees control the funds and in most
cases utilize fund managers that are very professional. Public trusts engage in the pooling of
the investor's capital into various or given kinds of assets like oversee securities, mortgages,
equities, cash, property and investments in money markets. The cash management trustees
are under the governance of the overall trust deed
The non -ADI financial institutions comprises of the Securitisers, money market
corporations like the broker dealers and the Finance companies like the pastoral finance
companies and the general financiers all of which are under the supervision of the ASIC.
The non ADA financial institutions offer credit enhanced secures, offer loans to various
small, medium and large scale enterprises and households. They also lend to Government
agencies and large corporations. The above corporations usually undertake their overall
operations in the whole sale markets. Other services offered by the Non -ADI financial
institutions include; borrowing to government agencies and big corporations. Hence forth
the above are main types of financial institutions as classified by the Reserve Bank of
Australia.
Report on the performance of a major bank in Australia
The major bank to be focused on is the common wealth bank of Australia. The common
wealth bank of Australia has various ventures in the United Kingdom, United States, Asia
and New Zealand. The bank offers a number of financial facilities and services such as
broking services, investment, insurance, superannuation funds, management, institution
banking, business, retail and other forms of financial services. In the period of April 2018,
the common wealth bank of Australia registered a big fall in its overall equities or shares. It
is important to note that in the year 2014, there was failure to comply with the introduced

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law by the CBA aimed at providing retirement funds at relatively lower costs. These were
targeting specific customers that had not chosen a particular product retirement savings.
There was also a general fall in the profits mainly emanating from regulatory expenses in all
most ten years. This was a result of the bank’s failure to abide with the money laundering
regulations
It is important to note that the common wealth bank of Australia has of recent years been
involved in various cooperation agreements strategically with and Hangzhou and Jinan city
commercial bank. Forty nine percent stake of colonial national bank was also acquired by
the bank in period of January 2006. The bank also opened another outlet or branch in Ho
Chi Minh City, Vietnam in the beginning of the year 2008. The bank has also engaged it’s self
in various partnership with other institutions like Aussie Home Loans. The common wealth
bank of Australia was listed in the 2010-11 preferred employers making it the only financial
sector to be cited in the top twenty lists of Dream employers. The scandals in the year 2018
revealed that the Common wealth bank of Australia was involved in charging financial
service advice on dead people as per the information obtained from the royal commission
into misconduct in the financial services, superannuation and banking industry (Cusbert and
Kendall, 2018). There net bank services being offered by the bank making online banking
easy. This enables various customers to access liabilities and assets, engage in the proper
management of their accounts and be able to transfer funds (Debelle, 2017).It is imperative
to note that the common wealth bank of Australia in a bid to expand its overall levels of
operations has engaged in a number of takeovers, acquisitions and partnerships. The overall
performance being exhibited by the bank in the industry has been mainly due to various
techniques such as team spirit, trust, growth in the levels of profitability, business banking,

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operational and technology efficiency and effectiveness and high levels of customer
satisfaction. Basing on the financial perspective, the common wealth bank of Australia has
registered tremendous success (Gillitzer and Simon, 2015). For in the financial year 2011/12
the overall net earnings of the common wealth bank of Australia stood at 6,394 million
dollars registering a thirteen percent increment when compared to the other year
(Kent,2018). The level of return on the earning per share and equity stood at 411.2 cents
and 18.4 percent respectively registering a twelve percent increment as compared to the
previous year. A final dividend amounting to $ 1.88 on each and every share was also
registered by the bank reflecting an increment of eleven percent as compared to the other
year. The bank had a stable interest margin due to proper strategies of risk management. It
should be noted that the overall rise in the level of net margin was due to bills discounted,
loans plus other receivables.
None the less, of recent the common wealth bank of Australia has engaged in a number of
scandals which has weakened its overall credibility among the general public. In the year
2015, the bank was reported to be part of the Australia’s largest banks that invested heavily
in the overall risky fossil fuel project financings. The bank's staff was also in the year 2016
found to have engaged in the Ponzi scheme fraud of $76 million (Daley and
Parsonage ,2016). The insurance division of CBA also registers systematic issues ranging
from the presence of outdated medical data in the insurance policy. None the less in spite of
some of the above weakness, it is still the biggest bank in the area of Australia and has over
the years demonstrated its financial and management capabilities (Gray and Malone,2008).
The recent cases at the bank cannot rule out the various achievements registered by the
common wealth bank of Australia in ensuring that households, small, medium and large

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enterprises are able to access funds for purposes of financing there business activities(Viney
&Phillips,2015). .
The Term structure of interest rates in Australia
In simple terms the relationship between various maturities or terms and the bond yields or
interest rates is defined as the structure of interest rates. The term structure of interest
rates is very important in an economy and acts as a vital bench mark in the world of income.
In other words the overall the collective expectations of market participants regarding
monitory policy conditions, inflation and interest rates is reflected in the term structure (ain-
Chandra et al, 2009).
The expected and current short term rates determine the overall long term interest rates in
the economy. Such brings about indifferences among rational investors when deciding on
in short and long term bonds investments due to similar investment returns for all the
options (Mankiw, 2014). The term structure of interest rates is affected by various variables
like the risk premier and the overall investor expectations. Risk expectations are usually
brought about by changes in yields which make the overall interpretation and modelling of
the interest rate structure a bit complex (Reserve Bank of Australia, 2009). The reserve bank
of Australia of recent adopted the ATSM model and was able to identify that there has been
a decline the real interest rates medium and long term expectations. It is also clear that
premia risk changes have a strong impact compared to observed yields movement
expectations while expectations for future real, short term nominal and inflation rate
change over time It also found out that since the 1990's there has been a fall in the
expectations of long term inflation mainly die increased credibility of the RBA targeting
inflation frame work (Viney &Phillip,s2015).

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Also, a relatively bigger proportion of the Australian Government yields decline in securities
since the economic crisis or depression shows premia at lower real time other than inflation
expectations falls (Free, 2010). The fall may show outside or oversee variables like easing
programs that are undertaken by the US and quantitative by their very nature and have
associations with flows of portfolio rebalancing (Rozhkov,2008).
Figure 1 shows the term structure of Australia (Rozhkov, 2008).

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References
Viney,C.&Phillips,P.(2015).Financialinstitutions,instruments,andmarkets,8thedn,McGraw-
HillAustralia, Sydney, ISBN:9781743079959
Gray, D., and . Malone,S.(2008).Microfinancial Risk Analysis, Chichester, West Sussex, England;
Hoboken, NJ: J. Wiley & Sons Inc.
ain-Chandra, S., P. N’Diaye, and .Oura,H. (20090. “How Vulnerable is Corporate Asia?,” Chapter 3,
Regional Economic Outlook, Asia and Pacific: Global Crisis: the Asian Context, (Washington:
International Monetary Fund).
Reserve Bank of Australia. (2009). Financial Stability Report: March 2009 (Sydney: Reserve Bank of
Australia).
Rozhkov, D.(2008).“Australian Banks: Weathering the Global Storm,” Australia: Selected Issues, IMF
Country Report No. 08/311 (Washington: International Monetary Fund)
Daley J, D,. and Parsonage, H.(2016). Hot Property: Negative Gearing and Capital Gains Tax Reform,
Grattan Institute Report No 2016-8, Grattan Institute, Melbourne.
Gillitzer, C., and Simon.J.(2015).‘Inflation Targeting: A Victim of Its Own Success?’, RBA Research
Discussion Paper No 2015-09.
Cusbert,T., and Kendall, E.(2018). ‘Meet MARTIN, the RBA’s New Macroeconomic Model’, RBA
Bulletin, March, viewed.

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Debelle, G. (2017). ‘Global Influences on Domestic Monetary Policy’, Committee for Economic
Development of Australia (CEDA) Mid-Year Economic Update, Adelaide, 21 July.
Kent, C .(2018). ‘Australian Fixed Income Securities in a Low Rate World’, Address to the Debt
Capital Markets Summit, Sydney, 14 March.
Free, R .(2010). 21st Century Economics: A Reference Handbook. Volume 1. SAGE Publications. p. 8.
ISBN 978-1-4129-6142-4.
Mankiw, N. (2014). Principles of Microeconomics. Cengage Learning. p. 32