Big finance companies to be treated like banks

One of the most significant proposals in the Government’s review of non-bank products is it plans for the finance company sector.

Friday, 1 September 2006

The second, lower level of regulation would come under a system governed by the Securities Commission and trustees. The two models proposed are:

It also points out that because a finance companies lends money to a range of borrowers “there is a potentially substantial level of contagion risk with deposit takers, both because of their funding nature and because they tend to be viewed as like entities.”

It also says that these deposit taking firms tend to be relatively highly geared compared to other forms of debt issues.

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