The Financial System Inquiry’s final report recommended increasing the mortgage risk weights of the major banks to improve competitive neutrality.
The Customer Owned Banking Association, in its response to the Competition Policy Review’s draft report, accused the big four banks of misusing their market power.
“The ability of the major banks to ignore traditional competitive pressures is exemplified by the recent statement of ANZ CEO Mike Smith, who asserted that if the major banks were required to hold more capital this would ‘come at a cost to customers who will pay more for home lending’, and estimated that loan prices would increase by about 50 basis points,” the submission said.
“This is despite the fact the hypothetical capital changes Mr Smith was discussing would be applied to only four, or at most five, of Australia’s approximately 180 authorised deposit-taking institutions.”
In a competitive market, five banks would not be able to unilaterally increase their prices without suffering a loss of market share, according to the submission.
“However, major bank CEOs are suggesting they will be able to entirely pass these costs onto consumers,” the submission said.
The Customer Owned Banking Association submission also said the ACCC’s current regulatory toolkit is inadequate to respond to the misuse of market power.
“The ACCC has advised the Competition Policy Review that the existing misuse of market power prohibition is of limited utility in prohibiting anti-competitive conduct by firms with substantial market power,” the submission said.
“This is particularly concerning for the Customer Owned Banking Association given the market power currently held by the major banks in the banking sector.”
ANZ did not respond to Mortgage Business’ request for comment by press deadline.