Regional banks call for action
In response to draft terms of reference released last month, Suncorp and Bank of Queensland have sought to ensure concerns about big bank dominance are not subsumed by broader issues such as the economy's funding needs.
The chief executive of Suncorp's banking arm, John Nesbitt, said "future proofing" the competitiveness of the regional banks should be a key priority for the inquiry, to be led by former Commonwealth Bank boss David Murray.
Specifically, Mr Nesbitt identified the "disproportionate" cost that regulatory change inflicted on smaller banks, and rules that allow larger banks to set aside less capital for every dollar lent out.
"Australia wants and needs a strong multi-tiered financial services sector and this inquiry presents a once-in-a-generation opportunity to do something meaningful in support of that objective," Mr Nesbitt said in a letter to Treasury.
It is understood Bank of Queensland also reiterated concerns with Treasury about rules that allow big banks to set aside relatively less capital because they are seen to have more sophisticated risk systems.
BoQ argued that if its systems are accredited so that it can also hold less capital relative to its outstanding loans, the rules should be consistent with those governing the big four.
It also reaffirmed concerns that big banks have access to cheaper funding because investors assume they would be bailed by taxpayers in the event of financial difficulties.
The other large regional lender, Bendigo and Adelaide Bank, has also previously argued that regulation should be a top priority for Mr Murray.
Under draft terms of reference, Mr Murray and a four-member panel will be tasked with developing recommendations on how to create a more flexible and competitive system, without compromising stability.
Commonwealth Bank, ANZ Bank, NAB and Westpac - which have a combined market share of 83 per cent in home lending - have welcomed the broad scope. But smaller rivals are keen to put the focus on the big banks' market dominance.
The chief executive of the country's biggest credit union CUA, Chris Whitehead, echoed concerns about access to funding and argued for rules forcing banks that have multiple brands to more clearly disclose their ownership.
As well as policy changes, he conceded the customer-owned sector also needed to get its "house in order" to be a serious competitive force, which is likely to include more mergers.
"We think there's still more consolidation to happen," Mr Whitehead said. "If you are going to compete then the reality is you have to have the strength in terms of scale and funding diversity."
Frequently Asked Questions about this Article…
Regional banks are calling for the government to prioritize their competitiveness because they believe the financial system inquiry is a rare opportunity to level the playing field against larger banks. They want to ensure that issues like big bank dominance are addressed to create a more balanced financial sector.
Smaller banks face challenges such as disproportionate regulatory costs and rules that allow larger banks to set aside less capital for loans. These factors make it harder for regional banks to compete effectively with the big banks.
Big banks benefit from the current regulatory system because they are allowed to set aside less capital for every dollar lent out due to their more sophisticated risk systems. This gives them a competitive edge over smaller banks.
The financial system inquiry, led by David Murray, aims to develop recommendations for creating a more flexible and competitive financial system without compromising stability. It is seen as a chance to address the dominance of big banks and improve the competitiveness of smaller lenders.
Smaller banks argue for consistent rules with big banks because they believe that if their systems are accredited, they should be allowed to hold less capital relative to their loans, similar to the big banks. This would help level the competitive playing field.
Smaller banks are concerned that big banks have access to cheaper funding because investors assume they would be bailed out by taxpayers in financial difficulties. This perception gives big banks an unfair advantage in securing funding.
The customer-owned sector can improve its competitiveness by consolidating and merging to achieve greater scale and funding diversity. This would strengthen their position as a competitive force in the financial market.
It is suggested that banks with multiple brands should be required to more clearly disclose their ownership. This transparency would help consumers make more informed decisions and potentially increase competition in the banking sector.
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