COBA calls for fairer capital rules


The Customer Owned Banking Association has called for fairer capital rules to promote competition in the mortgage market.

APRA currently allows the major banks to hold much less regulatory capital against home loans than their smaller competitors such as mutual banks and credit unions.

In a submission on APRA’s revised capital framework, COBA has called on APRA to narrow the capital gap between the ‘standardised’ approach used by smaller banking institutions and the ‘IRB’ approach used by major banks.

Customer Owned Banking Association CEO Michael Lawrence said the difference in capital requirements has helped cement the major banks’ dominance of the home loan market.

“Customer owned banking institutions and other challenger banks want a fair go and a level playing field.

“The ‘Big Four’ have been using the capital rules to gain a significant funding cost advantage on COBA’s members, making t harder for our sector to deliver competitive pressure.

“The Productivity Commission looked at this problem last year and estimated that the advantage to major banks was a reduction of approximately 0.14 percentage points in the cost of funding the loan portfolio. This difference translates into an annual funding cost advantage of almost $750 on a residential mortgage of $500 000, or about $15 000 over the 30-year life of a residential mortgage.

“The major banks’ sheer size gives them enough advantages. They should not be getting extra help from the regulatory framework.

“We acknowledge that APRA took an interim step back in 2016 to tackle this problem, but further action is needed. APRA’s peer regulator in New Zealand is proposing strong action to narrow the gap in the NZ market.

“A string of inquiries and reviews dating back to the 2014 Financial System Inquiry (FSI), including the 2018 Productivity Commission’s Banking Competition Inquiry and the 2018 ACCC residential mortgage price inquiry, have all underlined the need to fix this problem.

“The FSI found that competitive distortions in this area could have a large effect on the relative competitiveness of all ADIs and that restricting the relative competitiveness of smaller ADIs will harm competition in the long run.”

COBA’s submission can be read here.

A PDF version of the media release can be read pdfhere.

For more information please contact:

Mick Gibb
Corporate Affairs Manager
0423 149 494
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. Visit