The smaller banks have taken aim at their competitors, insisting the financial services royal commission final report should have done more to fix anti-competitiveness in the Australia sector.
Adelaide and Bendigo Bank CEO Marnie Baker told Your Money chief business reporter Leo Shanahan that the final report had left the door open for the government to step in.
“Commissioner Hayne in putting out his final report has gone a long way to work for better outcomes for customers,” Baker said.
“[But] I think it’s left open scope for the government to supplement that report and do some more to ensure we have a more even playing field,” she added.
Currently, the big four banks control around 80 per cent of all mortgage loans and about 85 per cent of investor loans.
With Australia’s largest, the Commonwealth Bank, boasting a market cap of $130 billion, their collective size dwarfs any of their competitors.
That scale also lends the big banks a significant competitive advantage.
“Some of the initiatives I’d like to see the government to address are in relation to things like the ‘too big to fail’ [idea] that came about at the start of the GFC. In a way, it provided a funding cost advantage to the big banks,” Baker explained.
At the height of the GFC, USD $700 billion of taxpayer money was used to bail-out US banks that the government deemed ‘too big to fail’, choosing to prop them up rather than watch them fall.
“In essence, it provides a funding cost advantage to the major banks and if you look at that, the implied ‘too big to fail’ actually means the big banks are operating three-notches higher on credit rating than non-majors are,” Baker said.
That combined with uneven credit weightings form significant setbacks for small banks.
“When an individual borrower comes into a major bank, the major bank [doesn’t] have to apply as much capital to the risk on that loan,” Baker said.
Those pressures have helped tighten margins, leading the bank to post a 2.4 per cent fall in half-yearly profits.
With Adelaide and Bendigo Bank scraping through the royal commission considerably well compared to their larger counterparts, its time the government addressed these disadvantages.
“I think it is absolutely a direct extension that when it comes to bad and poor behaviours and misconduct that it can be directly linked to when you have too much market power.”
Watch the full interview above.