Competition in banking takes a backward step

25 May 2017

If the industry needed any evidence as to why a bank levy is justified, Monday’s S&P announcement provided it, ME Bank CEO Jamie McPhee said today.

S&P said it was “affirming its issuer credit ratings on the four major Australian banks, reflecting the expectation of likely timely financial support from the Australian government if needed, which in its view offsets the deterioration in these banks’ Stand Alone Credit Profiles”.

ME CEO, Jamie McPhee, said S&P’s decision increased the advantage the major banks receive from being ‘too big to fail’ by a further rating notch to three rating notches, more than removing any levelling of the playing field that was achieved from the 6 basis point Bank Levy announced in the budget.

“Competition in banking took a backward step on Monday,” said McPhee.

“The current environment does not provide for ‘competitive neutrality’, which is to the detriment of consumers. This situation will remain until both the gap in capital requirements is further reduced and the cost of funding advantage currently being enjoyed by the major banks due to their ‘too big to fail’ status is removed”.

McPhee said the irony of what drove Monday’s announcement should not be lost.

“According to S&P, the four major Australian banks are materially driving the system-wide risks in Australia given their collective dominance and yet yesterday’s decision further entrenches their dominance and therefore, the inherent risks,” he said.

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