In this ACFS Financial Regulation Discussion Paper, Professor Kevin Davis puts forward a proposal to allow ADIs to pay the proposed fee for the Financial Claims Scheme (FCS) by cancellation of accumulated franking credits as an alternative to cash payment. Introducing this option, which would be available to all ADIs, would offset some existing distortions in the financial system perceived to exist by mutual financial institutions arising from the dividend imputation tax system. It would also offset further distorting effects of the FCS fee that the mutual sector has suggested may reduce their competitive ability. The budgetary effects are relatively small and involve a reduction in the fee income to be gained from introduction of the fee.
This paper was prepared by Professor Kevin Davis, Research Director of the Australian Centre for Financial Studies.
Disclaimer: Professor Davis is a former director of a small credit union, and also owns shares in Australian banks.
The ACFS Financial Regulation Discussion Paper series provides independent analysis and commentary on current issues in financial regulation with the objective of promoting constructive dialogue among academics, industry practitioners, policymakers and regulators and contributing to excellence in Australian financial system regulation.
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