HomeView 2014 Media ReleasesCOBA response to FSI interim report

Australia’s customer owned banking sector has welcomed aspects of the Murray Inquiry’s Interim Report, but argues that it falls short on competition in banking.

“The FSI Interim Report’s finding 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 CEO Louise Petschler said.

“Fair and sustainable competition in the banking market is not possible when the regulatory framework advantages only the biggest players.

“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.

“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, 25–60 basis points in Japan, 20–60 basis points in the UK, and 60–90 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.

“The FSI panel has been too hasty in distancing itself from the levy idea.

“Sustainable competition is critical to consumer outcomes, as the FSI interim report explicitly acknowledges.

“We welcome the report’s observation that more could be done to emphasise competition in the performance of regulators such as APRA.

“We are also very supportive of the report’s finding that ‘fairness is an important policy objective of the financial system’. The customer-owned sector strongly endorses the view that ‘fairness involves fair treatment by applying the concepts of integrity, honesty, transparency and non-discrimination which go to building trust in the financial system’.

“A fairer banking system in Australia also relies on better recognition of the customer owned banking model, issues which COBA will be pressing for further review.”

“There are many positive observations in the interim report and we will continue to work constructively with the FSI Panel.”

For more information and interview requests 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

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