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Prudential Regulation and Australian Credit Unions

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  • Kevin Davis

    (Department of Accounting and Finance, University of Melbourne, Parkville VIC 3052.)

Abstract

This paper examines the impact of recent changes in the prudential regulation of non-bank financial institutions in Australia, with a particular focus upon the implications for coöperative financial institutions, such as credit unions. Such institutions are unable to raise external capital to satisfy regulatory capital requirements, and are thus forced to rely upon retained surpluses to generate capital. This, it is argued, creates an incompatibility between the regulatory structure and institutional for M, imposes an arbitrary constraint on coöperatives' growth and can induce a focus upon inappropriate financial targets by credit union management. A further impediment to the survival of coöperative financial institutions can be found in the risk weights applied for capital adequacy purposes. It is suggested that these constraints will hasten the on-going decline in the number of credit unions through mergers and conversions to alternative for Ms.

Suggested Citation

  • Kevin Davis, 1994. "Prudential Regulation and Australian Credit Unions," Australian Journal of Management, Australian School of Business, vol. 19(1), pages 31-46, June.
    • Handle: RePEc:sae:ausman:v:19:y:1994:i:1:p:31-46
    DOI: 10.1177/031289629401900102
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    References listed on IDEAS

    as
    1. Rasmusen, Eric, 1988. "Mutual Banks and Stock Banks," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 395-421, October.
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    4. Smith, Donald J & Cargill, Thomas F & Meyer, Robert A, 1981. "An Economic Theory of a Credit Union," Journal of Finance, American Finance Association, vol. 36(2), pages 519-528, May.
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    Cited by:

    1. David Ely, 2014. "Credit unions and risk," Journal of Regulatory Economics, Springer, vol. 46(1), pages 80-111, August.
    2. Dr Jon D. Stanford, 2004. "Unexpected Outcomes of the Financial Institutions Act," Discussion Papers Series 333, School of Economics, University of Queensland, Australia.
    3. Brown, Christine & Davis, Kevin, 2009. "Capital management in mutual financial institutions," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 443-455, March.
    4. Esho, Neil, 2001. "The determinants of cost efficiency in cooperative financial institutions: Australian evidence," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 941-964, May.
    5. Amr Khafagy, 2018. "Regulation, supervision and deposit insurance for financial cooperatives: an empirical investigation," Annals of Finance, Springer, vol. 14(2), pages 143-193, May.
    6. Millicent Chang & Andrew B. Jackson & Marvin Wee, 2018. "A review of research on regulation changes in the Asia‐Pacific region," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 635-667, September.

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