The government and regulators need to act to level the playing field and encourage competition in the industry says MyState.
MyState chairman Miles Hampton called on the government to take positive action saying that lighter regulatory oversight was increasing the growth of the shadow banking sector.
“Constraints imposed on banks through regulation are paving the way for this shadow banking growth,” he said.
Mr Hampton said the Productivity Commission had shown that strong regulatory emphasis on large banks at the expense of competition was not in the interest of the consumer.
“The Productivity Commission observed that larger financial institutions have the ability to exercise market power to the disadvantage of consumers. Part of that ability stems from the regulatory requirements placed on smaller banks which inhibit our ability to compete effectively with the larger players,” he said.
MyState’s managing director Melos Sulicich welcomed the finding that the larger banks gained an unfair advantage from their ‘too big to fail’ status.
“Consumers are demanding the competition that smaller banks provide, but we are hobbled by capital constraints which let larger banks lend much more with the same capital. We urge the government to increase the average mortgage risk weights which govern larger banks’ reserves to reduce their lending advantage,” said Mr Sulicich.
Mr Sulicich said that banks are well placed to adapt to competitive challenges but are unfairly constrained by regulations that benefit larger banks.
“We want to compete and provide much needed competition in the Australian banking landscape. We are simply asking for a more level playing field so that our customers and shareholders are not disadvantaged,” he said.
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