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Australia’s smaller banks have criticised the Financial System Inquiry for describing the country’s banking system as “competitive”.
The inquiry’s interim report, which was released yesterday, said the system is competitive on balance.
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The net interest margins of the major banks are around historic lows, while their average return on equity is comparable to those achieved by other large companies, according to the inquiry.
However, it also said that major banks benefit from having less stringent capital requirements and because they can access cheaper funding due to the perception they are too big to fail.
Louise Petschler, chief executive of the Customer Owned Banking Association, said the inquiry had “ducked the issue” by failing to estimate the size of the big four’s funding advantage.
Ms Petschler also called for a levy on the major banks to cancel out this advantage.
“Fair and sustainable competition in the banking market is not possible when the regulatory framework advantages only the biggest players,” she said.
Meanwhile, Bank of Queensland chief executive Stuart Grimshaw said the inquiry had put the too-big-to-fail issue on the table for further discussion.
“While a critical issue to resolve, it is difficult to find a solution that both reduces the funding cost gap and yet minimises unintended consequences,” he said.
Suncorp chief executive John Nesbitt said the banking industry needed an efficient and competitively neutral set of regulations.
“The Financial System Inquiry panel has stated clearly that the capital regime as it applies to housing loans is not competitively neutral,” he said.
“This provides the sort of impetus needed to help motivate regulatory change.”
ME Bank chief executive Jamie McPhee described the interim report as a positive step toward levelling the playing field even though it had not made any concrete proposals.
[Related: Banking battle continues on TV screens]
