Four regional banks launched a joint submission yesterday to the Financial System Inquiry, requesting change to increase their market competitiveness in the face of the Big Four.
Bendigo and Adelaide Bank, BOQ, ME Bank
and Suncorp Bank
made the submission – written by Pegasus Economics – and called for competitive neutrality to level the playing field and benefit consumers.
Developments since the GFC through domestic and global regulation have re-shaped much of the competitive environment, resulting in inefficiencies which provide significant advantage to Australia’s largest banks, the non-majors claimed.
The submission considers the competitive irregularities to include:
- The significant disparity between the application of risk weightings under the standard and advanced prudential capital adequacy framework
- The increased access to funding and the cost advantage available to banks deemed systemically important
- The higher cost for regional banks, in relative terms, of the constant flow of new regulatory and prudential requirements.
To solve this, the four non-majors recommended a 20% risk weighting be applied on residential mortgages under the standard prudential capital adequacy framework, as currently standardised banks are required to hold almost three times as much capital as banks accredited under the advanced approach over mortgage portfolios with comparable risk.
They request de-coupling of the approval process for operational, market and credit risk to achieve advanced accreditation under the Basel accord and increased transparency and disclosure of the ownership structures of advisory and mortgage aggregation providers.
The four also want a regulatory environment that recognises the disproportionate impact of regulation on smaller banks.
ME Bank CEO Jamie McPhee said in spite of the capital and funding anomalies in the market, regional banks remain competitive.
“By levelling the playing field and giving regional banks the same competitive landscape as major banks, they will deliver improved competitive tension in the market for the benefit of customers.”
The regional banks argued the four majors would need an additional A$27 billion in capital if they provided as much capital to back home loans as smaller banks do.
However, the group are not advocating for government hand-outs or additional regulatory overlay, Suncorp Bank CEO John Nesbitt said.
“This type of intervention creates market distortions as evidenced by the funding and capital advantages afforded Australia’s largest banks. Our submission recommends changes to the regulatory settings which have created illogical competitive anomalies.”
BOQ CEO Stuart Grimshaw believes the recommendations would help redistribute capital to the areas of the economy which are “crying out” for investment, such as small business and agribusiness.
On of the Big Four, Commonwealth Bank, also made a separate submission to the Inquiry yesterday.
Its recommendation includes applying consistent regulatory standards to rapidly developing digital financial services to protect customers and system stability, improving efficiency and adaptability of the regulatory system, and improving the public’s financial literacy.
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