In its submission to the Financial System Inquiry (FSI), the Australian Bankers’ Association Inc. (ABA) has called for the government to support diverse funding sources and the development of the domestic debt capital market.
The ABA submission identifies funding of the Australian economy, including through the banking system, as a critical issue where a clear strategy needs to be developed.
ABA chief executive Steven Münchenberg said the financial crisis showed that funding can be vulnerable.
“While markets are adaptive and resilient, it would be prudent to ensure Australia has a clear plan for ensuring the economy and banks have access to as diverse a range of stable funding sources as possible,” Mr Münchenberg said.
In its submission the ABA said that all banks agree markets are currently competitive, but that the Inquiry should consider proposals to drive more competition, on the merit of the case put forward and consistent with a stable and efficient market.
“A major contributor to competition levels is the availability and price of the funding available to banks,” Mr Münchenberg said.
“Ensuring banks have access to a wide and diverse range of reliable funding sources can help intensify competition,” he said.
Possible impediments identified in the submission include the income tax disadvantages of deposits and other interest earning products relative to other forms of investment, and the proposal to tax savings through a deposit levy, which would make deposits even more costly to banks and decrease their attractiveness to savers and investors.
The submission also notes that the government can play a vital role in the development and expansion of the domestic debt capital market.
“This market is small and underdeveloped in Australia compared to other developed economies, but if deepened and made more liquid it could provide an important source of funding to the Australian economy,” Mr Münchenberg said.