Bank reforms welcomed by smaller institutions in Sydney
SYDNEY: The small bank home lending sector endorsed yesterday's reforms, but regretted the decision not to scrap the tiered banking guarantee system.
Members Equity Bank chief executive Jamie McPhee said the reforms had struck a "good balance" across the national financial system.
"On balance, I think it's a reasonable set of initiatives," he said after the government unveiled its keenly awaited Competitive and Sustainable Banking reforms package.
The reforms ranged from abolishing exit fees, empowering the Australian Competition & Consumer Commission to prosecute anti-competitive price signalling, building a new pillar in the banking system by supporting the mutual sector, and allowing banks, credit unions and building societies to issue covered bonds.
Critically for ME Bank, Mr McPhee said, was the proposal to invest a further $4 billion to buy residential mortgage-backed securities to support smaller lenders.
"If you said to me what's the one thing that's very critical to ME Bank, it's that one," he said. While the market had not yet returned to normality, he said, "to have the AOFM (Australian Office of Financial Management) continue to support that market for us was quite critical".
The missing piece in the reforms for Mr McPhee was the government's decision not to scrap the tiered pricing to access its wholesale bank funding guarantee, which is based on a bank's rating. The government introduced the measure in 2008, during the global financial crisis.
"I felt that was never appropriate, relying on ratings to determine the pricing with the government," he said.
"So one thing I would have liked to see the government do is to put everyone back on the same level of the fee that they're paying for the government guarantee."
Overall, Mr McPhee said the proposed banking reforms were a "good announcement".
"If you look at the developing of covered bonds, that's obviously something that's not going to help the smaller banks but it is going to help the major banks access funding," he said.
"Anything that's going to assist the banking system as whole . . . such as accessing funding is a healthy thing." Because the smaller banks did not share the same high rating as the major banks, it was harder for smaller lenders to issue covered bonds cost-effectively, he said. "For us, that is the advantage of mortgage-backed securities, rather than covered bonds." -PB News