Today is the final day for submissions to the Federal Government’s Financial System Inquiry.
It is a once in a 10- to 20-year opportunity for an objective look at the financial system in Australia and whether the players in that system are stable, competitive and to a large extent, serving the economy in a way which adds rather than subtracts value.
Some argue this dominance of the ANZ, CBA, NAB, Westpac and their subsidiaries is squeezing other players within the Australian financial system and increasing the concentration and market power in the hands of these four companies – the Majors.
They hold 81% of all term residential loan assets, up from around 72.5% in March 2008 when the GFC really kicked off with the collapse of Bear Stearns in the US. RBA and APRA data also shows that they have actively been seeking deposits in the local market, taking them from $278 billion of household deposits in March 2008 to $522 billion in December 2013. That’s around 63.8% of total household deposits – a big lift for the Majors in terms of market dominance since pre-GFC days.
The 4 Majors have been recently classified by APRA as a Domestic Systemically Important bank – D-Sib. As a result of questions that have been raised about the stability of the Australian financial system as an ecosystem if one of these “too-big-to-fail” institutions were to get into trouble and need Government assistance or a bailout – as occurred offshore during the GFC – the Federal Government has established its Financial System Inquiry.
This inquiry, headed by ex-CBA and Future Fund boss David Murray, is tasked with evaluating changes in the shape, scope and balance of the Australian financial landscape, not only as a result of the GFC, but since the last big financial system inquiry, led by Stan Wallis back in 1997.
At the heart of what no doubt will come to be known as the “Murray Inquiry” is a terms of reference which directly addresses economic efficiency in finance and competition. The terms of reference state that:
The Inquiry will recommend policy options that:
- promote a competitive and stable financial system that contributes to Australia’s productivity growth;
- promote the efficient allocation of capital and cost efficient access and services for users;
- meet the needs of users with appropriate financial products and services;
- create an environment conducive to dynamic and innovative financial service providers; and
- relate to other matters that fall within this terms of reference.
But it’s not necessarily seeking to drag the Majors down to improve competition. There is a strong ecosystem underneath the big 4 of regional, foreign and mutual banks which just need a little competitive lift and a platform on which to tell their story.
bankmecu CEO Damien Walsh hopes the inquiry will look deeply into the strength and diversity that the mutual sector, which is made up of ADI’s such as credit unions, building societies and mutual banks, brings to the Australian financial system.
Mutuals, the name by which these three types of ADIs is referred to by APRA, are owned by members who retain the profits and benefits of pooling their resources for the good of themselves and other members – things like lower home loan rates and fees and better term deposit rates. The customers own the bank and through the board that they appoint, the mutual is managed to serve its members.
bankmecu, for example, started out life as the Sirocredit (the CSIRO co-operative credit union) and since then has been joined by 55 other credit unions to form bankmecu, which in 2010 became Australia’s first member-owned, or as they like to say, customer-owned bank.
But Walsh told Business Insider that it didn’t change the values that he and the bankmecu board held dear – indeed bankmecu was asked to join the Global Alliance for Banking on Values (GABV) in 2012. The GABV says of itself that it is “an independent network of banks using finance to deliver sustainable development for unserved people, communities and the environment” and at the heart of their ethos is the triple bottom line of “people, planet and profit” which Walsh said is completely aligned with bankmecu’s philosophy.
The GFC showed that it’s a rare bird in the world of financial services which puts people and the planet before profit, but Walsh says it is the engine which is driving bankmecu’s growth. This is where Damian Walsh wants to turn banking on its head.
He said that mutuals like bankmecu were originally created to serve a social need but as the Majors have increasingly liberalised and come after his retail members in the search for deposits and growth, the social need is less relevant to attracting new members. So what he and bankmecu are doing is seeking to “put the mutual heritage into a modern context to put bankmecu on a sustainable footing and attract a younger audience”.
It seems to be working – 66% of bankmecu’s new members are under 40 and the average age of members is now 30 in an industry that has an aging customer base.
If Murray can find a way to support Australian financial institutions such as mutuals like bankmecu and help the majors to remain strong, he will have improved competition and kept the Australian financial system in the pink of health into the future.
Disclaimer: Greg McKenna has worked in banking since he left school in 1986. He has worked at both Westpac and NAB and is now a director of Police Bank – a member-owned bank.
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