HomeView 2014 Media ReleasesClaims on big bank capital dismissed

The Customer Owned Banking Association today dismissed suggestions by Australia’s largest banks that their capital holdings have never been so high.

“Statistical analysis of publicly-available APRA data shows the claim doesn’t stack up,” COBA’s Acting CEO Mark Degotardi said.

“The major banks have consistently argued through the Financial System Inquiry debate that they hold more capital now than ever before, but APRA’s own statistics don’t support this.

“Our analysis shows capital holdings by the major banks are actually lower now than they were before or during the GFC.

“The major banks’ claim about higher capital holdings is based on the way they are allowed to risk-weight their assets. A simple calculation of capital as a percentage of total assets paints a very different picture,” Mr Degotardi said.

COBA today released a graph* of capital as a percentage of total assets (i.e. not risk-weighted assets) which shows that major bank capital has fallen from around 7 per cent 10 years ago to around 5 per cent today.

Using this methodology, APRA’s data clearly shows that over the last decade the major banks– unlike all other ADIs - have been reducing the proportion of capital they hold.

“Allowing the major banks to hold significantly lower levels of capital than their competitors provides them with a cost advantage which undermines competition,” Mr Degotardi said.

“This is not in the interests of consumers.”

Major bank capital holdings could be increased by:

  • Higher capital requirements given their classification by APRA as “systemically important” - APRA has already imposed a 1% capital surcharge on the major banks but this is low by international standards; and
  • A floor on the risk weight the major banks can apply to home loans.

“Improving the rules on capital will create a more level playing field and help secure the long term stability and competitiveness of Australia’s banking sector,” Mr Degotardi said.

“Requiring systemically important banks to hold more capital and fixing unfair regulatory settings is not ‘gold-plating’ the system, it is good policy.

“Any move by the major banks to try to raise prices in response to higher capital requirements will see them lose market share to their competitors, including customer-owned banking institutions, regional banks and foreign banks.

“The major banks are not immune from competition.

“We’re confident the FSI will put constructive recommendations on these matters to the Federal Government and we look forward to the release of the FSI’s final report next month.”

*All data has been sourced from APRA’s Quarterly ADI Performance publication published on 26 August 2014. Percentages have been derived by dividing the total capital base by total assets. See tabs 5b and 5c for major bank data, tabs 3b, 3c, 4b and 4c for credit union and building society data, and tabs 6b, 6c, 7b and 7c for other ADI data.

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 credit unions, building societies, mutual banks and friendly societies.  See coba3.nexusone.com.au

Download PDF release here149.21 KB

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