Information being released on the submissions to the Murray Inquiry on the Australian financial system are showing a clear dichotomy between what Australia’s major banks see as their point of difference and source of profitability and what many in the rest of the financial system see as their major competitive advantage.
Yesterday Louise Petschler, CEO of the Customer Owned Banking Association (COBA), yesterday released a statement saying that, “Australians may be surprised to learn that they are subsidising the operations of the nation’s four biggest banks. The current financial system gives some of the world’s most profitable banks billions of dollars in funding advantages for free.”
Not so according to the ANZ, who the AFR reports this morning has rejected such arguments, saying in their submission that the majors are able to generate lower funding costs as a result of their “strong balance sheets, funding, liquidity and risk management capabilities”. The ANZ said that it rejected the “view that its ability to access capital more cheaply than smaller banks is because of a perceived government guarantee.”
But hang on for a second – research released by the Federal Reserve Bank of New York last Friday showed explicitly that banks that are systemically important and deemed too-big-too-fail achieved a funding advantage precisely because of this status. Looking at data from the United States between 1985 and 2009, it estimated this advantage in the bond market to be 41 basis points.
Equally it showed that these too-big-too-fail banks take on more risk, encourage other banks trying to compete to do likewise and by virtue of their size, the big banks end up with a funding cost advantage.
David Murray and his committee are receiving plenty of advice from both sides of the banking debate and finding a way forward is going to be a complex task.
You can read the AFR story here