The industry funds-owned ME Bank has declared its strong support for the Government’s big bank levy arguing that it will have some positive impact on banking competition in circumstances where events during the global financial crisis (GFC) tilted the playing field in favour of the majors.
In a submission to the Senate Economics Legislation Committee review of the Major Bank Levy Bill, ME Bank claimed there had been a level playing field or large banks, regional banks, foreign-owned banks, credit unions, building societies and non-ADIs prior to the GFC.
However, it claimed this level playing field had been altered by the Government’s decision to provide a bank guarantee and the resulting regulatory environment.
“… post GFC, regulation has tilted the playing field materially in favour of the large banks by lowering their capital costs, and relative funding and compliance costs,” the submission said. “As a result, there is compelling evidence of efficiency and competition issues in financial services and retail banking.”
It said the four largest domestic banks continued to increase their market share and were very profitable by international standards.
“Market concentration is significant in most markets and return on equity (ROE) is higher for the larger banks, despite the heavy asset weighting towards low-risk domestic housing assets,” the ME Bank submission said.
It said that it was in these circumstances ME Bank believed it was time to identify, acknowledge and discuss issues of competitive neutrality in a constructive way with a view to improving the system for the future.
“The best means of mitigating the trend towards further concentration is to refocus banking regulation,” the ME Bank submission said. “Competitive neutrality is about ensuring all service providers compete on an equal footing and that regulatory arrangements do not favour some service providers over others.”