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The MFAA has been joined by 100 banks in warning the federal government that the big four have too much market power.
The MFAA told the Financial System Inquiry that it disagreed with the claim made in the inquiry’s interim report that the banking sector is “competitive, albeit concentrated”.
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According to the MFAA’s submission, the interim report was also wrong to say “market concentration can be a by-product of competition if more efficient firms grow at the expense of their less efficient competitors”.
The MFAA said the main reason the big banks have become larger since 2007 is “because of government intervention with wholesale funding guarantees and savings guarantees”.
Other reasons include the big four being allowed to acquire mid-tier banks and a dramatic fall in the availability of securitised funding to smaller lenders, the submission said.
A joint submission from Bendigo & Adelaide Bank, Bank of Queensland, ME Bank and Suncorp Bank said the majors receive a commercial advantage by being perceived as too big to fail.
“The large banks receive a two-notch rating upgrade due to implicit government support which gives them a funding and cost advantage,” they said.
“The International Monetary Fund estimates the ongoing funding cost advantage to be in the order of 25 basis points. Using this estimate, the implicit taxpayer subsidy to the major banks – just on their rated debt programs – is in the order of $2 billion per year.”
The Customer Owned Banking Association, which represents 96 institutions, said in its submission that the big four’s too-big-to-fail image is worth $2.9 billion to $4.5 billion per year.
“This is based on findings that the implicit guarantee provides a funding cost benefit of between 22 and 34 basis points to the major banks,” it said.
“This distortion is getting worse as it feeds on itself and big banks get bigger and more systemically important.”
[Related: RBA warns inquiry about too much competition]
