Majors could be forced into credit reporting

ME Bank chief risk officer Carlo Cataldo is confident the government will force the majors to participate in comprehensive credit reporting (CCR).

CCR is a potential contingency outlined by David Murray in the Financial System Inquiry (FSI) final report.

Mr Cataldo said an ME Bank analysis of international markets shows comprehensive data sharing is less likely to occur in highly concentrated banking markets such as Australia.

He said the number of participants is essential to CCR’s success and big banks will have to be forced to participate to make it work.

“When CCR was being designed for Australia, the primary focus was on which data elements to share.

“While we still want additional data to be made available, such as balances, the number of participants sharing comprehensive credit data is just as critical.”

Unless a significant proportion of banks participate in CCR, consumers without defaults or late payments on their credit report (a vast majority) are unlikely to receive the full benefit of their good credit performance, including greater access to credit and lower prices, Mr Cataldo said.

He added that the broader economy will also fail to receive the boost to growth that should result from increased lending and better risk management.

“The FSI final report highlighted that the current regulatory structure does not provide incentives to promote participation, potentially limiting the benefits of the new regime for consumers and the broader economy.

“The report confirms the importance of CCR and advocates for government to force banks to participate should they fail to do so voluntarily and quickly.”

Mr Cataldo said ME Bank’s analysis of overseas regimes also show access to credit improved and the cost of credit fell when more institutions share data.

“More data sharing enables lenders to better price risk – they no longer have to set interest rates based on average loan performance in which low risk subsidise high risk borrowers,” he said.

“This allows for increased competition by removing monopolies on credit data and giving other smaller and newer lenders the increased ability to compete on price.”

In terms of macroeconomic benefits, ME Bank found that a number of Australian studies show CCR can lead to an increase in private sector lending contributing to growth in GDP, productivity and capital stock growth.

A study by Access Economics in 2008 showed comprehensive credit reporting could contribute economic growth to the value of $1.7 billion per annum assuming full participation by all banks.

ME Bank will be fully participating in CCR in 2015 with work underway on the system requirements for reporting and consuming comprehensive credit data.

“By participating early on, ME Bank is showing consumers that banks can be ready quickly,” Mr Cataldo said.

“It would be a pity if other banks had to be forced to do the right thing.”

 

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