Balance Banking

The 2014 Financial System Inquiry headed by former CBA boss David Murray will be the first inquiry of its type since the 1996-97 Wallis inquiry. COBA has lobbied for an inquiry for some time, including through its Balance Banking campaign launched in 2013.

The unfair advantages enjoyed by the big four banks must be a key target for the Financial System Inquiry (FSI). COBA wants the inquiry to critically examine Australia’s financial system which currently favours the big four banks, with an unfair cost-of-funding advantage and inadequate incentives for genuine competition. The big four banks receive a massive hidden subsidy in the form of an implicit Government guarantee, which APRA found can encourage systemically important banks to take excessive risks, reduces market discipline and creates competitive distortions, further increasing the probability of distress in the future. COBA regards winding back the dominance of the big four banks and promoting competition and competitive neutrality as key objectives of the Financial System Inquiry.

COBA has also advocated strongly that the inquiry should examine:

  • the culture of regulators and its impact on competition, consumer choice and diversity of business model;
  • consumer perceptions about the banking system, including the problem of major banks posing as regional banks or non-banks by using sub-brands;
  • more effective disclosure about ‘shadow banking’ institutions;
  • the regulatory framework and ways to accommodate the customer owned model and;
  • the high fixed costs of regulation that weigh most heavily on smaller players.

COBA believes the inquiry should address the implicit guarantee currently enjoyed by the four major banks, and the impact of the current regulatory environment in the banking sector on concentration and competitive neutrality. It should also examine the appropriate treatment and recognition of the ‘customer-owned’ banking business model in the corporate, prudential and taxation regimes.

By performing this role, Australia’s financial system can achieve genuine competitive neutrality between listed ADIs and customer owned ADIs to deliver effective competition and consumer choice.