Regional Banks Make Joint Submission to the Competition Policy Review

Thursday, 05/06/2014

Four of Australia’s leading regional banks have today made a joint submission to the Review of Competition Policy advocating for a level playing field in retail banking. 

The Regional Banks argue that genuine competition, fostered through a fair, transparent and open banking system is the best means of delivering improved long-term competitive outcomes for consumers and small business. 

Although Australia’s banking system has proven robust and stable, developments since the Global Financial Crisis have re-shaped much of the competitive and regulatory environment resulting in inefficiencies which provide significant advantages to Australia’s largest banks. 

With some key regulatory changes, Australia’s financial system can evolve and be characterised by healthy competition between institutions of various sizes and business strategy. A healthy, multi-tiered system is preferable to one of increasing concentration and dominance by large institutions.  

The submission is based on work undertaken for the Financial System Inquiry (FSI) which also is investigating competition and is running in parallel to the Competition Policy Review. The four regional banks are: Bendigo and Adelaide Bank, BOQ, ME Bank and Suncorp Bank. 

The submission recommends the following initiatives: 

  • A more equitable and risk-reflective means of setting regulatory capital, i.e. a 20% risk weighting be applied on residential mortgages under the standard prudential capital adequacy framework. Standardised banks are required to hold almost three times as much capital as banks accredited under the advanced approach over mortgage portfolios with comparable risk;
  • Removal of the “too big to fail” taxpayer subsidy enjoyed by the largest banks;
  • A change to the process for achieving advanced risk management status. A de-coupling of the approval process for operational, market and credit risk to achieve advanced accreditation under the Basel accord;
  • Increased transparency and disclosure of the ownership structures of advisory and mortgage aggregation providers; and
  • A regulatory environment that recognises the disproportionate impact of regulation on smaller banks. 

Bendigo and Adelaide Bank CEO Mike Hirst said: “While interest rates are currently low due to the Reserve Bank’s monetary policy, eventually rates will begin to rise. When this happens, it will be even more important that there is a level playing field in banking to ensure consumers are getting the best deal. The regional banking sector is essential to competition and communities throughout Australia.”

ME Bank CEO Jamie McPhee said: “As a relatively new bank with strong growth intentions, ME Bank will be competing hard for customers into the future. Our staff are motivated to do well and we are seeking a level playing in order to ensure those banks offering the best customer proposition get appropriately rewarded. This is why a level playing field is essential.” 

Suncorp Bank CEO John Nesbitt said: “Our focus is very much on ensuring regulations do not advantage one bank over another. Regional banks are competing but not in a level competitive environment. Our submission does not advocate for government handouts or special privileges for Regional Banks.” 

BOQ CEO Stuart Grimshaw: “One benefit of competitive neutrality often overlooked is that of efficient resource allocation. The purpose of a well-functioning financial system is to allocate capital to its most productive areas. This will only happen if regulatory anomalies are removed. We all know that small business and agribusiness need more access to finance - our recommendations will help get more finance into these sectors.” 

The Regional Banks look forward to engaging further with the Competition Policy Review Panel.