Regional banks have urged the Financial System Inquiry (FSI) to investigate recommendations on levelling the playing field after the interim report raised some key issues in Australia’s banking system.
“ME Bank is looking to the FSI inquiry to put forward some concrete proposals to level the playing field. The Report has stopped short of making recommendations, but has raised appropriate policy options,” ME Bank CEO Jamie McPhee said.
According to some of Australia’s leading regional banks, one of the main concerns relates to the capital treatment of housing loans in the market.
The FSI observed that larger banks tend to have a cost advantage for mortgage lending due to their capacity to adopt an internal ratings-based (IRB) approach, opposed to a standardised approach. The report quotes an APRA submission which notes, “In early 2014, the average risk weight for housing lending under the IRB approach was 18%, as compared to 39% under the standardised approach.”
This is seen to be a competitive disadvantage as loans are risk-weighted based on who holds them, rather than what type of loan it is. Similar loans should be compared with similar loans, and risk weighted the same regardless of what type of institution holds them.
Regional banks are hoping that this observation will inspire some action John Nesbitt, CEO of Suncorp
“The FSI Panel has stated clearly that the capital regime as it applies to housing loans is not competitively neutral… This provides the sort of impetus needed to help motivate regulatory change,” Nesbitt said.