New laws will require APRA to consider competition and regionality

Senator Nick Xenophon has revealed that he will help introduce legislation in 2018 that will change APRA's mandate to include competition, and require it to consider the differences in the housing market when bringing in macro-prudential measures.

The senator for South Australia and the leader of the Nick Xenophon Team (NXT) political party made the announcement during an impassioned speech at the Community Bank National Conference in Adelaide on Tuesday (19 September). 

According to Mr Xenophon, new legislation was needed to help “level the playing field” between the banks, as he believed that the current system gives the “big four banks an unfair advantage over small banks and credit unions”. 

Stating that the big banks have increased their share of the home loan market “from a staggering 80 per cent to a frightening 90 per cent” following the global financial crisis (GFC), Mr Xenophon said that community banks were a “shining exemplar of what Australia needs more of” and were “providing the perfect antidote to the toxic environment created by the conduct of the big banks”.

In a scathing attack, Mr Xenophon continued: “You would have thought that with that tax payer guarantee would have come some humility. 

“But no. Instead, we have seen all too often a reckless arrogance, a contempt for customers — the polar opposites of what you bring to communities.”

Touching on the recent allegation that CBA had breached anti-money laundering and terrorism financing laws, the senator questioned: “Why should CommBank continue to get an inherent competitive advantage over a community bank, whose conduct and ethos is the antithesis of what CommBank did?” 

As such, he said that he would “make no apology for calling for the law to be changed to bring [Australia] into line with UK laws, relating to bribery and corruption, and extending them to money laundering laws".

“We need to hold directors and senior executives of a big bank accountable, by imposing lengthy jail terms if they have a reckless disregard for law and the absence of systems to prevent such breaches.”

He continued: “While you are punching well about your weight, the playing field is far from level. It is still tilted, all too heavily, in favour of the big banks. That has to change.” 

‘Changes to APRA’s mandate can make an even bigger difference’

The senator went on to reveal that he believed lending curbs brought in by APRA were “consolidating the power of the big four at the expense of every other local bank and lending institution in Australia”.

Adding to the increasing scrutiny of the prudential regulator and the impact of its measures, he suggested that the 10 per cent speed limit and 30 per cent cap on new investor lending were seemingly having the effect of “consolidating the market power of the big four, while nobbling everyone else.

“These rules, intended to cool the overheated housing markets in Sydney especially, and Melbourne too, are too blunt an instrument,” Mr Xenophon told delegates.

“They fail to take into account that the housing markets of, say, Townsville and Adelaide, and for that matter Rupanyup and Minyip, are very different from the frenzied markets of Sydney and Melbourne. 

“A more nuanced, calibrated approach is needed, and that could be achieved if APRA is required by law, in its objectives, not only to take into account its financial stability mandate, as it must, but secondary factors such as competition in the banking sector.”

As such, Mr Xenophon announced that he would help introduce legislation next year to “require APRA’s mandate to also include competition in the banking sector, to consider the differences in our housing markets between the two biggest cities and the rest of the nation (especially the regions) and also to require APRA to give weight to the impact a bank in a small regional community can have”.

“These seemingly little changes to APRA’s mandate can make an even bigger difference,” he said.

Mr Xenophon concluded: “All that, and further narrowing the unfair gap in mortgage risk rates between the major banks and smaller lending institutions, will help level the playing field and allow you to grow and help even more individuals and communities.” 

APRA’s powers have been increasingly scrutinised in recent months, particularly regarding its impact on competition and implementing a one-size-fits-all approach to regulation. 

APRA chairman Wayne Byres acknowledged last week that there was a risk that its measures could be constraining competition, stating: “To the extent that you constrain part of a portfolio to within some limited capacity, then inevitably you are limiting the extent to which competition can happen.”

However, Mr Byres noted that the policy had a stratified approach, wherein “we have been more lenient on the smaller institutions than in the large”, and added that there are some “very small institutions” that will “bobble up and down” above the 10 per cent investor growth benchmark.

Mr Byres concluded: “When we thought about how to apply these things, we stratified the portfolio of the lenders that we regulate. There's the top 15–20 where we've been pretty firm; they have to meet their obligations, they have to meet them by deadlines and there's very little leeway given.

“There's a middle tier where… we've given a bit more leeway, particularly in terms of time to adjust and then there's… the very small tier where you recognise that there is some difficulties of applying a one-size-fits-all approach.”

[Related: CUA ‘impacted by extremely competitive market’]

 

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Annie Kane

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