Authorised Deposit-taking Institutions (ADIs) are financial institutions in Australia that have been granted a licence by the Australian Prudential Regulation Authority (APRA) to accept deposits from the public. These institutions include banks, building societies, and credit unions. ADIs are subject to stringent regulatory oversight to ensure their safety, soundness, and stability, protecting depositors and maintaining confidence in the financial system.
ADIs play a critical role in the financial system for several reasons:
Banks are the largest and most well-known type of ADIs. They offer a wide range of financial services, including savings and transaction accounts, loans, credit cards, and investment products. Major banks in Australia include the “Big Four” – Commonwealth Bank, Westpac, ANZ, and NAB.
Building societies are mutual organisations that provide banking and financial services to their members. They are owned by their members, and profits are typically reinvested to improve services or returned to members. Building societies focus on residential mortgage lending and savings accounts.
Credit unions are member-owned financial cooperatives that offer banking services similar to those provided by banks and building societies. Credit unions operate on a not-for-profit basis, and their primary objective is to serve the financial needs of their members. They offer savings accounts, loans, and other financial products.
The Australian Prudential Regulation Authority (APRA) is responsible for the prudential regulation of ADIs. APRA’s mandate is to ensure that ADIs operate safely and soundly, protecting depositors and promoting financial system stability. APRA sets and enforces prudential standards, conducts regular supervision, and requires ADIs to maintain adequate capital and liquidity levels.
APRA imposes a range of prudential standards on ADIs, covering areas such as:
Deposits held in ADIs are protected by the Australian Government Deposit Guarantee, also known as the Financial Claims Scheme (FCS). Under the FCS, deposits up to $250,000 per account holder, per ADI, are guaranteed by the government, providing an additional layer of protection for depositors.
ADIs offer various savings and transaction accounts, allowing individuals and businesses to deposit money, make payments, and manage their finances. These accounts typically offer features such as interest earnings, online banking, and debit cards.
ADIs provide a range of loan products, including personal loans, home loans, and business loans. These loans support various financial needs, such as purchasing a home, financing a car, or funding business operations.
ADIs offer investment products, such as term deposits and managed funds, allowing customers to grow their wealth. Term deposits provide a fixed interest rate over a specified period, while managed funds pool investors’ money to invest in a diversified portfolio of assets.
ADIs offer credit facilities, including credit cards and lines of credit, providing customers with access to funds for short-term financial needs. These facilities come with interest rates and repayment terms that vary depending on the product and the customer’s creditworthiness.
Consider a family in Melbourne looking to buy their first home. They approach a major bank, an ADI, to apply for a home loan. The bank assesses their financial situation, including income, expenses, and credit history, to determine their eligibility for the loan. Once approved, the family receives the loan and uses it to purchase their home. They also open a savings account with the bank to manage their finances and save for future needs. Throughout this process, the bank operates under the regulatory oversight of APRA, ensuring that it meets prudential standards and safeguards the family’s deposits.
Authorised Deposit-taking Institutions (ADIs) are a cornerstone of the Australian financial system, providing essential banking services and maintaining financial stability. Regulated by APRA, ADIs operate under stringent standards to protect depositors and ensure their safety and soundness. Understanding the role and functions of ADIs helps individuals and businesses make informed decisions about their banking and financial needs.
For more information on ADIs and their regulation, you can visit the Australian Prudential Regulation Authority’s website.
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