The Customer Owned Banking Association (COBA) has outlined a three-step plan for sustainable banking competition, which it intends to present to politicians in Canberra.
The strategy is part of the association’s ‘Better for All’ campaign, which aims to help the Australian Prudential Regulation Authority
(APRA) bring more competition and choice to the national banking landscape.
“The three steps are a fast tracked Productivity Commission review of banking competition, more focus on competition from APRA, and allowing customer owned institutions more capacity to raise capital,” COBA CEO Mark Degotardi said.
“These measures make sense to us and they’ve been backed by recommendations from the 2014 Financial System Inquiry and Senate Inquiry into Cooperatives.”
COBA recommends the Turnbull government allocate funds in its May budget to bring forward a planned Productivity Commission review of banking competition.
At present, the review is set to commence this year. However, COBA wishes to accelerate the process so the review can also be completed by year end. The association points to recommendations made in the House Economics Committee’s November 2016 report which was highly critical of the state of competition in the banking market.
The plan also recommends implementing a ‘secondary competition objective’ within the APRA Act. COBA intends to model this on the UK, which tasks APRA’s UK counterpart, the Prudential Regulation Authority (PRA), to drive more competition in the financial services market.
The secondary competition objective states that, “When discharging its general functions in a way that advances its objectives, the PRA must so far as is reasonably possible act in a way which, as a secondary objective, facilitates effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities.”
Finally, COBA hopes to increase the capital raising capacity for second tier banks. Under current standards, the association claims that customer owned banking institutions are hindered in this area.
The gap in risk weight requirements for mortgages is one example the association has highlighted, given that the average risk weight is 25% for the major banks and 39% for the non-majors. Risk weight is the capital a bank is required to set aside as assets against its loans, meaning the non-majors have to put more aside than the big four.
Degotardi said these recommendations are concrete solutions that can be brought in this year.
“The evidence is in and the onus is now on policy makers and regulators to deliver what consumers want – sustainable competition which will ensure a level playing field and give consumers more choice.”
While in Canberra, COBA will present this three-step strategy while also highlighting the customer owned banking alternative.
“With these three steps, customer owned institutions will deliver even more for Australians who want banking that puts them first,” Degotardi said.
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