The interim report’s conclusion that the banking market is ‘competitive’ is contradicted by its other findings that regulatory capital requirements are not competitively neutral and that the ‘too big to fail’ problem has become entrenched, COBA chief executive Louise Petschler said.
“Fair and sustainable competition in the banking market is not possible when the regulatory framework advantages only the biggest players,” Ms Petschler said.
“For example, the FSI interim report says the major banks ‘have market power across a range of markets’ and that ‘vertical integration of mortgage broking may create conflicts of interest, which could hamper competition.’"
COBA is disappointed that the interim report makes no attempt to estimate the size of the funding cost advantage enjoyed by major banks due to the perception of being too big to fail, Ms Petschler said.
She adding that the FSI panel has “ducked the issue” by saying any funding cost advantage is likely to fluctuate over time and could be transient if government policies effectively reduce the systemic risks posed by larger banks.
“This contrasts with the International Monetary Fund’s April 2014 Global Stability Report finding that implicit subsidies enjoyed by systemically important banks are ‘large’.
“The IMF estimates these implicit subsidies are at least 15 or so basis points in the United States, 25 to 60 basis points in Japan, 20 to 60 basis points in the UK, and 60 to 90 basis points in the euro area.
“Global policymakers are determined to solve this problem – but global agreement may take a long time. Until the global approach is settled, Australia should impose a temporary levy on the four systemically important banks.”
While COBA asserted that the FSI panel has been “too hasty” in in distancing itself from the levy idea, Ms Petschler said there are many positive observations in the report and that COBA will continue to work constructively with the FSI Panel.