Commission could lead to even more regulation for banks

Speaking to Mortgage Business's sister publication InvestorDaily, AMP Capital chief economist Shane Oliver said that the news of a royal commission – “another inquiry” – introduced an element of uncertainty into the financial services industry.

“I think, in a nutshell, [the royal commission] just puts a bit more uncertainty around Australian banks and raises the prospect of more regulation at a time when the US is going in the opposite direction,” Mr Oliver said.

“It may mean that we’re well and truly into a period where we’re seeing relative underperformance of Australian banks versus US banks.

“So we’ve been bucking a bit of a global trend in that sense, and that may worry investors a little bit.”
The implication of further tightening of regulation, among other things, could mean that foreign investors might find reason to “underrate” Australian banks, the chief economist added.

“The Australian economy is not as strong as it has been; the housing situation looks to cool down. In the meantime, there’s ongoing risks around the banks’ exposure to housing, and at the same time, Australia might be embarking on a path of tougher regulation,” Mr Oliver explained.

“All at a time when European banks are looking stronger, and US banks too. Foreign investors might see it as another reason to underrate Australian banks relative to global banks.”

Mr Oliver also acknowledged that the share prices of all four major banks had dropped by 1 per cent to 3 per cent within hours after the announcement of the royal commission into banking.

“It’s no surprise to see the initial knee-jerk reaction on the share market has been negative and that’s been led by an almost 2 per cent fall in the financials,” Mr Oliver said.

However, the chief economist added that “it [wasn’t] all doom and gloom”.

“These things do tend to unfold over a long period of time, so after [an] initial knee-jerk reaction, I think the market will largely go on and refocus on other things again.”

[Related: AMP launches 'landmark' financial modelling platform]