Casper.
Thanks for the links and the articles.
Banks Lend Money.
In order to remain viable, Australian Banks must meet the PAR ratio at 3% in the case that the bank requires money as a last resort due to say a bank run.
http://www.rba.gov.au/MediaReleases/1998/mr_98_05.html
However, in Australia, all bank deposits (NOTE BANK, not CU or other financial institutions) are insured. I believe it is 100% now due to the financial crisis but prior to that it was not.
Under Basel II the bank must maintain a Tier 1 and 2 capital ratio of 8%. That means that your deposits (which is a liability to the bank) can be entered into other contracts whereby the contracts are risk weighted. These contracts must not exceed a capital ratio of 8%.
In layman's terms, below is Terms and Condition doc from St George bank:
http://www.stgeorge.com.au/resources/sgb/downloads/loans/personal_terms_cond_0908.pdf
On page 4: it mentions :
There is no reference to what you mention in the Code of Banking Practise nor does the RBA restrict this. In the terms and conditions for opening an account, it does not mention anywhere what the bank will use your deposit for.
