Banks call for govt to fix mortgage framework

Four banks have called on the government to act now to repair the ‘inequitable’ framework currently allowing some banks ‘huge’ advantages in risk-weighting their home loans.

In their final joint submission to the Financial System Inquiry (FSI), Suncorp Bank, ME Bank, BOQ and Bendigo and Adelaide Bank reinforced three specific issues they believe need to be addressed to support a healthy, multi-tiered banking system.

The four regional banks have insisted an inequitable regulatory capital framework is giving some banks a huge advantage in the risk-weighting of home loans.

The regional banks strongly support the Inquiry’s recommendation for an average advanced housing risk weight of between 25 per cent and 30 per cent on ‘advanced’ banks and would like to see its implementation expedited for the benefit of Australian consumers.

Second, they highlighted the significant funding cost advantage delivered to the major banks by an implicit government guarantee and taxpayer support.

“The Inquiry’s final report makes a series of recommendations that would assist in addressing this problem, including setting a capital benchmark, introducing greater loss absorbency instruments and an enhanced crisis management toolkit,” the regionals said.

Finally, the four regional banks have called on government to acknowledged weaknesses in the current disclosure regime.

“The Inquiry’s final report makes strong recommendations, and the regional banks support clearer and more effective product disclosure and communication with consumers, particularly with regards to fees, risks and ownership in the mortgage broker and aggregator market,” they said.

Suncorp Bank CEO John Nesbitt asked for bipartisan support for Mr Murray’s recommendations, which he said go to the heart of competitive neutrality.

“The report recommends a 25 per cent to 30 per cent average mortgage risk weight be applied for those banks with advanced accreditation,” Mr Nesbitt said.

“This would simply narrow the gap between the capital held by smaller and larger banks over like-for-like mortgage portfolios.

“This will allow Australian consumers to benefit from a fairer, healthier, multi-tiered banking system well into the future.”

ME Bank CEO Jamie McPhee said that given the alignment between local and international regulatory changes – in particular, the need to set a floor on capital requirements – there is no reason why Murray’s reforms can’t be implemented in advance of the Basel process.

"Australian banks have led the world on regulatory reform, which stood us in good stead during the GFC – let’s continue that approach,” Mr McPhee said.

"For consumers, the sooner we improve the competitive banking environment, the better.”

All four regionals welcomed APRA chairman Wayne Byres’ recent comments indicating a preparedness to potentially move ahead of international regulators in relation to capital requirements and urged the federal government to implement the FSI’s key recommendations without delay.

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