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APRA capital proposals could improve competition

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COBA looks forward to engaging with our member banking institutions and responding in due course on APRA’s proposals to revise the capital framework for home loans.

“APRA’s proposals out today for consultation seek to target higher-risk residential mortgage lending, balanced against the need to avoid undue complexity,” said COBA CEO Michael Lawrence.

“We welcome APRA’s statement that the revised risk weight framework is likely to reduce any competitive differential in regulatory capital requirements between large and small banking institutions, improving the competitive position of the latter.

“It is encouraging that APRA is committed to further addressing the Financial System Inquiry recommendation that the difference in average mortgage risk weights between major banks and their smaller competitors is narrowed.

“The major banks benefit from using internal models to calculate risk weights while other banking institutions, including all mutual banks, credit unions and building societies, use the standardised approach.

“The APRA paper says some difference between the average risk weights for mortgages under the different approaches may be justified, but ‘it should not be of a magnitude to create unwarranted competitive distortions’.

“We welcome APRA’s proposal to implement, on an accelerated timetable, a risk weighted asset floor for the major banks. This will remove the ability of their internal modelling to vary too much from standardised risk weights.

“The Financial System Inquiry ranked this issue as second only to the need for the banking sector to have unquestionably strong capital and last week’s report by the Productivity Commission also identified it as an important factor affecting competition in banking.”

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For more information please contact:

Daniel McDougall, Senior Manager – Media and Communication

02 8035 8444 or 0407 637 541, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Customer Owned Banking Association is the industry body for mutual banks credit unions and building societies.  See www.customerownedbanking.asn.au

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