In its submission to the Financial System Inquiry, the BCA said that despite its resilience during the global financial crisis, Australia's capital market structure is "unbalanced" in certain areas.
"There are three specific imbalances in our debt and equity markets that if addressed have the potential to enhance our growth prospects," said the submission.
First, Australia has no liquid bond market, said the BCA.
"We have a very thin government bond market and infant corporate bond market. Less than 10 per cent of all debt issued on the wholesale debt markets was raised by corporates," said the submission.
By contrast, New Zealand has a deeper and more liquid bond market than Australia, said the BCA.
"Over 80 per cent of all debt provided to Australian enterprises is intermediated via the banking system," said the submission.
Second, there is a lack of longer-dated debt capital available in Australia, with a majority of debt provided by banks – which are only equipped to support debt up to seven years in duration, said the BCA.
"However, given maturity mismatches, there is a missing part of the market for longer-dated debt," said the submission.
"Players that have longer-term liabilities such as insurance companies, sovereign funds and other long-term investors need to find a way to participate more meaningfully in the market for longer-dated debt," it said.
Third, there is a lack of diversity across the risk-return spectrum in equity markets, said the BCA – with only small amounts of venture capital activity compared to other countries.
"Whether Australia suffers from a lack of early stage funding or lack of entrepreneurial innovation opportunities is unclear but Australia has less venture capital investment than other countries as a proportion of our GDP," said the BCA.
