Former chief of the Commonwealth Bank David Murray is heading an inquiry that is canvassing ideas to curb the dominance of the country’s $1.3 trillion mortgage market by the major banks.
This week the panel released an interim report and in it, major banks were said to have an advantage in the mortgage market because they don’t have to set aside as much capital against home loans thanks to better risk management systems.
The report asked for feedback on the idea of introducing ‘risk weights’ for the majors which could reduce this advantage. Forcing banks to hold more capital could put downward pressure on return from equity right across the industry.
The report’s findings were one of Australia’s banking system being competitive but that it had become more concentrated since the global financial crisis. It also found that it believed there was scope for smaller lenders to be more able to compete with the majors.
On a separate issue, the inquiry has acknowledged that bigger banks such as Commonwealth, ANZ, Westpac and NAB all could raise money more cheaply because there was a perception that they were too big to fail.
One proposal put forward by smaller lenders was to cut this advantage by applying a big bank tax but it received limited support by the panel.
It said it was a better option to try to get rid of this perception by implementing policies that could facilitate the orderly failure of troubled banks.