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Connexus : Issue 41
In an interview with Connexus, Harper says there has been a “tilting of the playing field” in favour of major banks and against smaller institutions. “And that affects the majority – basically all – of the mutuals,” he says. The Deloitte repor t suggests that, while smaller lenders such as mutuals need to increase market share to help provide effective market competition, they have been hampered in this goal since the GFC because of the market’s attitude towards smaller institutions, which has distor ted funding costs. There’s also the issue of the constraints on capital raising by mutuals implicit in the new Basel III refor ms. Har per says there is little doubt that the nation’s response to global regulator y developments has contributed to altering the balance between banking stability and competition in Australia. “It has forced our regulatory hand – it’s forced us to place a much greater premium on stability in the financial system at the cost, arguably, of competition, innovation and productivity.” Even if Australia could mount a case claiming that its regulator y str uctures remain adequate and do not require review, Harper maintains “we really don’t have a lot of choice”. That’s because Australia is a large importer of capital and, as such, relies on foreign capital inflow, meaning that the international financial community would regard Australia as “non-compliant” if it did not act to make changes that bring it into line with global reforms. “ We can’t afford the consequences that would produce for the cost, but more importantly for the availability, of fi nance for the development of Australian industr y,” Har per says. The case for competition A Senate Economics References Committee inquiry into the post-GFC banking sector is scheduled to repor t by the end of October. In a submission to that inquiry, Abacus has issued a call for a comprehensive and independent review of the financial system. Abacus argues broadly that such a review should examine regulator y settings, the position of the major bank s, consumer perceptions about competition and choice, funding markets, the per formance of regulators and recognition of the customer-owned banking model. More specifically, Abacus recommends that gover nment and regulator s more closely consider the impact of cur r ent regulator y changes, including: • Basel III capital reforms that do not provide equivalent treatment for customer-ow ned banking institutions compared with listed banks • Basel III liquidity reforms on demand for retail deposits Abacus CEO Louise Petschler says a review is needed now. “ The fact that there hasn’t been a wide-ranging independent rev iew of the financial sector for 15 years is, to a degree, a reason in itself. But there are other more compelling reasons for a forensic look at the strength of the sector and the genuine competition it offers,” she says. Petschler concedes that Australia has come through the GFC in a relatively strong position compared with Europe, the United Kingdom and the United States. “ But we are concerned that the end result for consumers has been a system where the pendulum has swung heavily towards stability and tilted away from competition.” The public will suffer in a financial system that stymies competition, according to Petschler, who agrees that the notion of major Some of the efforts to stabilise Australia’s financial system have come at a cost to competition and, importantly, consumers. louise Petschler, CEO, Abacus CoverStory 32 Connexus