Non-majors tipped as FSI ‘winners’

Non-majors and reverse mortgages have been tipped as two ‘winners’ to come out of the Financial System Inquiry.

As the FSI prepares to publish its final report next month, a panel of financial services professionals gathered at the Finsia annual conference on Friday to discuss the likely outcomes of the Murray Inquiry.

Deborah Ralston, executive director at the Australian Centre for Financial Studies is confident that calls for a ‘level playing field’ by the non-majors will be answered.

“I suspect that something will be done between competitive neutrality between the big banks and second-tier banks,” Mr Ralston said.

“I think the second tier banks might be a winner,” she said.

In a combined submission to the FSI, the regional banks’ called for a drop in mortgage risk weights.

The regional banks’ submission – a collective effort by Suncorp Bank, ME Bank, Bank of Queensland (BOQ) and Bendigo and Adelaide Bank – notes that Basel II may have contributed to the redirection of bank capital into the higher return/lower risk retail banking market for home lending and away from business lending.

The submission points out that the rest of the banking sector competes hard for housing lending despite the regulatory anomalies that provide the major banks with significant funding and capital advantages.

The dual nature of the capital adequacy regime enables ‘advanced’ banks to hold much less capital against a housing loan than other banks using the ‘standardised’ approach, the submission states.

As a result, the non-major lenders have recommended a ‘levelling of the playing field’ in terms of capital requirements.

Ms Ralston believes post-retirement products such as reverse mortgages will also be given favourable light in the FSI’s final report.

“Post-retirement products are going to be a winner,” she said.

“Just separating out what’s in the inquiry from natural demographic trends, one of my hobby horses is equity release products, which I think are going to be a big winner for banks over the years to come, particularly as the pension means test changes.”

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