HomeView 2015 Media ReleasesMajor banks short of 'unquestionably strong' mark

APRA has today removed any doubt that there is significant task ahead in ensuring Australia’s major banks are ‘unquestionably strong’.

APRA has today removed any doubt that there is significant task ahead in ensuring Australia’s major banks are ‘unquestionably strong’.

“APRA’s study shows the major banks will need to increase their capital adequacy ratios by at least 2 full percentage points to meet the Financial System Inquiry (FSI) benchmark on what is ‘unquestionably strong’,” said COBA Head of Public Affairs, Luke Lawler.

“Although APRA’s own definition of this benchmark is not settled, the regulator ‘fully supports’ the FSI Recommendation 1 that banks’ capital ratios should be ‘unquestionably strong’.

“Regulatory capital ratios in the customer-owned banking sector are much higher than those of the major banks, including almost twice the level of the highest quality capital – Common Equity Tier 1 capital.

“Increasing major bank capital ratios is not only good for financial system resilience, it will promote competition and reduce the unfair funding cost advantage the major banks enjoy at the expense of their smaller competitors.

“Major banks get a free benefit from taxpayers in the form of reduced funding costs because rating agencies factor in an implicit government guarantee when setting major bank credit ratings.

“The majors also enjoy a funding cost advantage due to a distortion in the regulatory capital settings that allows them to hold much less capital against home loans.

“It is encouraging that APRA has confirmed today it intends to move ‘shortly’ to address FSI Recommendation 2 on removing this competitive distortion. Tackling the gap in mortgage risk weights is essential to ensure sustainable competition in retail banking.

“Treasury acknowledges this in a Ministerial Brief just released under FOI.”

The 25 March 2015 brief to the Treasurer on credit card interest rates says:

‘The Murray Inquiry has made a number of recommendations aimed at enhancing competition in the banking sector. Successful implementation of reforms to level the playing field on capital requirements could have a substantial impact on competitive dynamics in the household lending market, including the credit card market.’

“The FSI blueprint is a pro-competitive and pro-consumer and should be implemented as soon as possible,” Lawler said.

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

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