Proposed bank levy changes ‘make no sense’

The Commonwealth Treasury has opened consultation on its proposed Financial Institutions Supervisory Levies (FSIL) that will apply for the 2019-20 financial year.

The levies are designed to recover the majority of the operational costs of the Australian Prudential Regulation Authority (APRA), and other costs incurred by government agencies and departments.

According to Treasury’s discussion paper, the total funding required under the levies in 2019-20 for all relevant agencies is $236 million, which amounts to a $22.6 million (10.6 per cent) increase from the 2018-19 requirement.

The Customer Owned Banking Association (COBA) has criticised the proposed distribution of the levies, claiming that smaller lenders would be disproportionately charged for regulatory costs predominately incurred as a result of investigations into misconduct from major financial institutions.  

Reflecting on the proposal, the industry association stated that levies on smaller banks would increase by more than 25 per cent, while major bank levies would decline.

Under the proposed changes, levies will increase for financial institutions with an asset base of less than $100 billion and decrease for those above the threshold.  

“This makes no sense at all given it was the misconduct of the major banks that has prompted the need to increase resourcing for APRA,” COBA CEO Michael Lawrence said.

“Customer-owned banking institutions have not engaged in the misconduct examined by the royal commission but now face being forced to ‘pay the price’.

“These proposals send a very confusing signal about the government’s intention to hold the major banks accountable for their conduct.”

Mr Lawrence added: “Major banks already have a head start on their smaller competitors through various aspects of the regulatory framework. They don’t deserve the extra help of a cut in their APRA levies, while their much smaller competitors are hit with huge increases.”

The COBA CEO urged Treasurer Josh Frydenberg to step in and “rule out” what he described as “grossly unfair increases” in APRA levies.

“Regulator industry levies should be set with sensitivity to the cost burden on smaller banking institutions and with more weighting given to the systemic importance and market power of major banks,” he said.

“The Productivity Commission describes the banking market as ‘an established oligopoly where the four major banks hold substantial market power and this is substantially supported by regulatory settings which contribute to the major banks’ structural advantages.’

“Sharply increasing levies paid by smaller banking institutions while reducing levies paid by major banks will make a bad situation worse.”

Consultation closes on 14 June.

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