COBA urges action to reduce unfair advantage for Big Four


The Customer Owned Banking Association has called for action to reduce the unfair funding cost advantage enjoyed by the ‘Big Four’ banks.

In a submission on APRA’s proposal to increase total capital requirements for the major banks, COBA urges the prudential regulator to tackle the ‘too big to fail’ problem that gifts major banks a significant head-start on their smaller competitors in funding markets.

Under the ‘too big to fail’ problem the ‘Big Four’ are effectively taking advantage of taxpayers by benefiting from the perception that they are subject to an implicit guarantee from government and therefore able to obtain more favourable credit ratings.

The ‘Big Four’ have reaped the rewards of the implicit guarantee for decades. It has made their wholesale funding cheaper, giving them an unfair advantage over challenger banking institutions.

This has distorted the market and harmed competition.

COBA’s submission calls on APRA to increase the amount of Tier 1 capital that major banks must hold to strengthen their total loss absorbency capacity.

COBA CEO Michael Lawrence said this was a golden opportunity to improve the resilience of the banking system and improve competition.

“Given the state of the banking market as described by the Royal Commission and various other inquiries, policymakers should be taking all opportunities to level the playing field and promote the competitive position of smaller competitors to the Big Four.

“APRA has a golden opportunity to kill two birds with one stone: increase the amount of capital held by major banks while improving competition in the banking sector.

“Tackling the ‘too big to fail’ problem was a key recommendation of the Financial System Inquiry report in 2014. The FSI recommended action to ‘reduce perceptions that some banks are subject to an implicit government guarantee to lessen market distortions created by this perception and improve competition in the banking sector.’

“The unfair funding cost advantage enjoyed by the major banks is real and damaging and should be urgently addressed.”

COBA’s submission can be read here.

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For more information please contact:

Mick Gibb
Corporate Affairs Manager
0423 149 494
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