The financial services inquiry must address the unhealthy dominance of the Big Four banks head on if it is to achieve its objective of increasing competition and lowering financial costs for all Australians, it has been claimed.
According to Peter Evers, managing director at People’s Choice Credit Union, greater equality in the rules governing the banking sector is required to level the playing field, particularly in areas such as access to capital, distribution of franking credits and capital allocation to home loans.
“Canberra wants the Financial Services Inquiry to be a ‘root and branch examination of the nation’s financial system’ — but it’s the trunk of Australia’s finance tree which needs the most urgent treatment,” he said.
“At the heart of our system, and the heart of our problems, stand the Big Four banks. These organisations are now so enormous and so ubiquitous we should no longer consider them ‘banks’.
“They are financial monoliths which dominate financial advice, managed funds and superannuation as well as business and consumer banking, deposits and mortgages,” he said.
One of the key problems, said Evers, is the fact regulation currently favours the Big Four, to the detriment of other players, notably the mutual sector.
The Big Four enjoy an effective taxpayer-funded advantage being considered “too big to fail”, he said, while rating agencies reflect this implicit government support in their ratings, which provides a material funding advantage, he added.
Unfair regulatory system
Evers stressed that listed organisations which compete in the market are either bought or stunted, while mutuals, which can’t be bought, not only face the Big Four’s market dominance but also an unfair regulatory system.
“Under the Basel III capital changes, mutuals cannot issue capital instruments, unlike listed ADIs. There is a clear lack of equality in the rules. This separation has been overcome in the UK. It should happen here as well,” he said.
Another issue is the high fixed costs of regulation, which weighs most heavily on smaller players like those in the mutual sector.
“At almost every turn, the playing field is tilted to entrench the dominant position of the Big Four. If the inquiry is trying to find ways to increase competition, one way to do this is through the appropriate recognition and regulation of the mutual sector.”
“Of course, a ‘mutual solution’ will not solve every issue facing the industry, but the needs of our sector, which services 4.5 million Australians, accurately reflect the needs of the entire financial industry.
“The financial services inquiry needs to deliver equality at all levels — funding, regulation and prudential standards — to give healthy competition every chance,” he added.
Written by Angela Faherty for the AB + F Journal.