Banking sector

Australia’s banking market is relatively concentrated by international standards. The share of banking assets owned by the four largest banks in Australia is higher than equivalent shares in most other jurisdictions.1 Concentration has increased since the global financial crisis (GFC), with the major banks’ share of total ADI assets increasing from 65.4 per cent in September 2007 to 78.5 per cent in March 2014.2 However, it is not unusual for concentration to increase following a financial crisis or economic downturn.

The banking sector’s increased concentration reflects two primary factors:

  • Westpac and the Commonwealth Bank acquired St George and Bankwest, which together accounted for 11 per cent of mortgages and small- and medium-sized enterprise (SME) loans at the time of their acquisition.3,4
  • Since the GFC, the major banks have benefited from better access to funds and lower funding costs than their competitors, allowing them to grow faster.

Some submissions, particularly those from smaller ADIs and non-bank lenders, propose that increased concentration has led to less competition. They point to the robust returns on equity earned by the major banks as an indicator of excessive profitability. However, the major banks argue there is adequate competition, pointing to low net interest margins and returns on equity around international norms.

On balance, the Inquiry considers the banking sector is competitive, reflecting a number of indicators.

Net interest margins of the major banks are around historic lows and mid-range by world standards.5, 6 In the lead-up to the GFC (2004–08), the average return on equity of the major banks was around 16 per cent, and has since averaged about 14 per cent.7 The RBA notes that these rates are comparable to those achieved by other large Australian companies, as well as by major foreign banks before the GFC.8

Customer satisfaction with the major banks has steadily increased since 2001 and is now at record highs, following an initial drop after the Wallis Inquiry.9 Consumers also have access to an extensive range of products and providers. For example, there are more than 500 standard variable mortgage products from more than 100 providers available, and more than 1,500 term deposit products from over 80 providers. That said, there are only about 35 small business loan products from around 20 providers.10

Further, bank lending fee income, non-deposit fee income and deposit fee income as a percentage of assets have all fallen since 2000.11 Fees paid by households have declined in absolute terms since 2010, with that decline largely driven by decreases in account servicing fees and transaction fees. However, fee income from businesses has increased, mainly due to an increase in account servicing fees and the volume of loans. Merchant service fees have also increased, although these have grown by only 13 per cent since 2003; whereas the value of transactions accepted has more than doubled.

Although the Inquiry considers the banking sector is competitive, the level of competition may vary across individual banking markets. Stakeholders raise a number of potential competition issues that warrant consideration, including:

  • The effect of regulatory capital requirements, and in particular capital risk weights, on competition
  • The effect of funding costs on the competitiveness of smaller ADIs and non-bank lenders
  • The level of competition in small business and personal lending
  • Constraints on the ability of consumers to compare and switch between products
  • The four pillars policy
  • Increasing market power and vertical integration

Regulatory capital requirements

Capital requirements are largely determined as a proportion of ADIs’ risk-weighted assets. Risk weights affect the extent to which a bank must fund its assets using regulatory capital (equity, preferred shares and subordinated debt), rather than potentially cheaper deposits and wholesale debt. The purpose of risk weights is to ensure the size of an ADI’s regulatory capital buffers reflects certain risks to which the ADI is exposed.

The Basel Committee on Banking Supervision (BCBS) sets minimum capital standards for banks. APRA enforces these minimum standards in Australia. The first of the Basel accords, known as Basel I, established standardised asset risk weights for calculating capital requirements, which applied to all ADIs in Australia. The Basel II framework allowed banks to seek regulatory approval to determine risk weights using IRB models that reflect their actual loss experiences. IRB modelling incentivises ADIs to improve their risk management practices by requiring less regulatory capital for lower-risk assets.

The four major banks and Macquarie Bank have had their internal risk models accredited by APRA. Other ADIs are not accredited, mainly because of the current standing of their risk management systems and the costs involved in developing internal models. Instead, they rely on standardised risk weights.

Preliminary assessment

Observation

The banking sector is competitive, albeit concentrated. The application of capital requirements is not competitively neutral. Banks that use IRB risk weights have lower risk weights for mortgage lending than smaller ADIs that use standardised risk weights, giving the IRB banks a cost advantage.

The IRB banks have lower risk weights for mortgage lending than standardised ADIs, although the advantage is less clear in relation to other asset classes. This provides the IRB banks with a cost advantage for mortgage lending. In its submission, APRA notes:12

  • In early 2014, the average risk weight for housing lending under the IRB approach was 18 per cent, as compared to 39 per cent under the standardised approach.
  • All else being equal, an ADI using the standardised approach would have to charge 23 basis points more than an IRB bank to achieve the same return on equity for a mortgage.

Submissions from smaller ADIs identify these higher risk weights as a competitive disadvantage. They argue that similar loans should be risk weighted the same, regardless of who holds them. However, APRA’s submission makes the following points:

  • IRB and standardised risk weights cover credit, market and operational risk. IRB banks are subject to additional requirements for interest rate risk in the banking book, whereas standardised ADIs are not. This means that direct comparisons between IRB and standardised risk weights overstate any competitive advantage for IRB banks.
  • The risk weights of the IRB banks vary over time in line with their loss performance. In recent years, the IRB banks have benefited from strong asset quality and low impairments. However, this could change if they experience higher losses in the future. Although credit unions and building societies have also experienced low impairment rates, some of the regional banks have experienced higher loss rates.13
  • The aggregate regulatory capital requirements of an ADI should reflect its overall risk profile. Although small ADIs may benefit from detailed knowledge of their customers, they also have relatively concentrated loan books and, in the case of credit unions and building societies, limited capacity to raise new equity. They also tend to have less sophisticated risk management systems, albeit with less complex risks. These factors suggest smaller ADIs may need higher regulatory capital buffers than their larger competitors.

The Inquiry considers smaller ADIs most likely face a disadvantage due to the differences between standardised risk weights and risk weights determined by IRB models. However, the extent of the disadvantage would be difficult to determine and would vary between ADIs over time, depending on the riskiness of their assets.

Standardised risk weights do not provide incentives for the ADIs that use them to reduce the riskiness of their lending, as this would not reduce their risk weights. Conversely, IRB banks receive strong incentives to reduce the riskiness of their lending.

Policy options for consultation

Submissions identify a number of options to address the consequences of the differences between standardised and IRB risk weights:

  • It may be possible for Government or APRA to work with smaller ADIs to help them attain IRB accreditation. Submissions indicate some non-IRB banks are actively considering how to attain IRB accreditation, but are finding this difficult. The Inquiry would welcome views on how Government or APRA may be able to assist with this.
  • Another option could be to increase the risk weights for IRB banks. This could involve setting a minimum risk weight for mortgages determined by IRB models, or indirectly determined by setting or increasing floors for key parameters in IRB models. For example, for stability reasons, APRA already requires that IRB banks assume a 20 per cent ‘loss given default’ rate for their mortgage book, even when their models produce a lower rate. Increasing the risk weights for IRB mortgages could increase stability and competition, and incentivise more lending away from housing; although, it could also increase costs for IRB banks and may therefore reduce efficiency.
  • In its submission, APRA notes that risk weight floors have been introduced in Sweden and Hong Kong, and the BCBS is investigating measures, such as floors and benchmarks, to limit risk weight variability while retaining appropriate risk sensitivity. However, the prospective introduction of floors and analysis by the BCBS is driven primarily by stability rather than competition concerns, and is not limited to mortgage lending.

Other suggested options would have trade-offs between stability and competition. They would also be inconsistent with Australia’s commitment to the Basel framework, and so may risk the international reputation of Australia’s banking system.

  • It may be possible to develop a tiered system of standardised risk weights that incorporates some components of IRB models. Such a system could potentially be more accurate than standardised risk weights, while less burdensome than IRB modelling. The Inquiry welcomes views on how such an option could be implemented.
  • A number of submissions propose APRA should lower standardised risk weights for mortgages.14 This option would have several drawbacks. It could lower the incentive to improve risk management models and further incentivise non-IRB ADIs to undertake mortgage lending, rather than business or personal lending. This option could also increase risk, which could increase funding costs.
  • A final option would be to allow smaller ADIs to adopt IRB for residential mortgages only, rather than for all asset classes. This would likely only benefit mid-tier ADIs that have the capacity to model their own mortgage risk weights. This option could also reduce stability, as the IRB accreditation process is designed to ensure ADIs manage their entire loan book effectively – and this would be lost.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • No change to current arrangements
  • Assist ADIs that are not accredited to use IRB models in attaining IRB accreditation
  • Increase minimum IRB risk weights
  • Introduce a tiered system of standardised risk weights
  • Lower standardised risk weights for mortgages
  • Allow smaller ADIs to adopt IRB modelling for mortgages only

The Inquiry seeks further information on the following area:

How could Government or APRA assist smaller ADIs to attain IRB accreditation?

Funding costs

The major banks have lower wholesale funding costs than their smaller competitors. A significant part of this advantage is derived from commercial and market factors, including the major banks’ size, their greater access to capital, the diversity of their lending portfolios and their sophisticated risk management systems. Although the funding advantages accruing from these factors may be a natural consequence of size, some submissions argue that other factors disadvantage smaller ADIs, namely:

  • A perception that some banks are too big for Government to allow them to fail, which may lead to creditors lending to these banks at a lower rate
  • The collapse in the residential mortgage-backed securities (RMBS) market following the GFC

Preliminary assessment

The impact of perceptions of too-big-to-fail on wholesale funding costs

A number of submissions argue that large banks receive an additional funding advantage, as they are perceived as too-big-to-fail.15 The Stability chapter explores this in more detail. In short, creditors may believe that, in times of crisis, the Government will provide taxpayer support to banks whose disorderly failure could damage other parts of the economy. Thus, creditors may be willing to lend to these banks at a reduced rate.

It is difficult to estimate the size of any possible funding cost advantage that the perception of being too-big-to-fail provides large banks. This is in large part due to different creditors having different perceptions around risk. A number of organisations have attempted to estimate the potential funding advantage; however, estimates vary depending on the methodology used.16 Any advantage is also likely to fluctuate over time, and could be transient if Government policies effectively reduce the systemic risks posed by large banks.17

The residential mortgage-backed securities market

During the GFC, the RMBS market became dislocated and the cost of RMBS as a funding source for mortgage lenders increased. This disproportionately affected smaller ADIs and non-bank lenders, which rely more heavily on these markets for funding, and compounded the wholesale funding cost advantage that the larger banks already had. The introduction of the Financial Claims Scheme (FCS), which protects retail bank deposits up to $250,000, also affected non-bank lenders, who could not benefit from it.

Before the GFC, short-term debt and securitisation provided a cost-effective form of funding that allowed smaller ADIs and non-bank lenders to compete with the major banks. In 2007, smaller ADIs and non-bank lenders accounted for approximately 70 per cent of RMBS issuance (Chart 2.1). Investor demand for RMBS fell during the GFC, with RMBS spreads increasing by over 100 basis points by 2012.18 At the same time, smaller ADIs found it difficult to access wholesale debt markets. The Government directed the Australian Office of Financial Management to purchase RMBS securities to support the market, but many non-bank lenders were forced to reduce their lending or change their business models.19

The Government has now closed its RMBS purchase program and the market has started to recover, with issuance of over $20 billion in 2013 (Chart 2.1). However, the RBA does not expect the market will return to pre-GFC levels in the near future.20

Chart 2.1: RMBS issuance by financial institution type

Australian dollar equivalent, annual

This chart shows the issuance of RMBS increasing from just under $20 billion in 2000 to around $50 billion in 2007, before falling to around $10 billion in 2008. Issuance has since recovered to around $25 billion in 2013. Over the period, the majority of issuance was by smaller ADIs, then mortgage originators, then the major banks.

*CUBS = Credit unions and building societies.

Source: RBA.

Further, smaller ADIs have relied more on deposit funding since the GFC, which has become relatively more expensive as all ADIs have shifted towards deposit funding and away from short-term debt.21 This has further reduced the competitive position of smaller ADIs.

It is not clear if changes in the RMBS market, and the associated deterioration in the competitive position of smaller ADIs and non-bank lenders, relate to an ongoing market failure. For example, the increase in RMBS spreads likely relates to a correction in the price of RMBS to reflect risk, rather than any ongoing issues with the market.

Policy options for consultation

Too-big-to-fail

A number of submissions propose measures to reduce the potential funding benefit arising from perceptions of too-big-to-fail. The Inquiry considers the best way to deal with any potential competition issues is by directly addressing the systemic risks posed by large banks. Potential policy responses to achieve this aim are discussed in the Stability chapter. They include:

  • Increasing the ability to impose losses on a failed financial institution’s creditors
  • Strengthening regulators’ resolution powers for financial institutions, and investing more in pre-planning and pre-positioning for financial failure
  • Increasing capital requirements on the most systemically important financial institutions

Other proposals that submissions raise include charging the major banks to ameliorate the funding disadvantage, or to explicitly guarantee all ADIs. The Inquiry does not consider that there is a case for options of this nature. Charging for a perceived funding advantage may strengthen the perception of Government support. Explicitly guaranteeing all ADIs would create significant moral hazard, expose taxpayers to very large contingent liabilities and put non-bank lenders at a competitive disadvantage.

Residential mortgage-backed securities

Some submissions argue that the Government should support the RMBS market to reduce funding costs for smaller ADIs and non-bank lenders, and to promote competition. The options include:

  • Introducing a new RMBS purchase program, which could potentially focus on purchasing lower-rated tranches
  • Purchasing housing loans from small lenders and issuing RMBS, or establishing a joint public–private sector body to undertake this function, along the lines of the Canadian approach or Fannie Mae and Freddie Mac in the United States

Before recommending such interventions, the Inquiry would need to be convinced of a clear market or regulatory failure in the RMBS market. Although Government support may have been appropriate during the crisis, the recent market recovery weakens the case for further intervention. All options, to varying degrees, would create contingent liabilities for taxpayers. The options may also require the Government to intervene in the market to ensure lending standards and could potentially create moral hazard.

Other proposals involve changes to regulatory arrangements governing ADI issuance and investment in RMBS. Some submissions suggest RMBS be treated as a high-quality liquid asset for the purpose of the liquidity coverage ratio. This would encourage major banks to purchase RMBS from smaller ADIs and non-bank lenders, as it could be a cheaper way of meeting these requirements than holding Commonwealth Government Securities or paying the fee for the committed liquidity facility. At present, RMBS holdings are only eligible as collateral for the RBA’s committed liquidity facility.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • No change to current arrangements
  • Provide direct Government support to the RMBS market
  • Allow RMBS to be treated as a high-quality liquid asset for the purpose of the liquidity coverage ratio

Small business and personal lending

Approximately 50 per cent of small businesses rely on bank loans to fund their businesses.22 Small businesses do not have access to the alternative funding channels available to larger corporations, such as debt market funding. This makes them more dependent on bank credit.

Individuals can access unsecured loans through a number of means, including personal loans and some credit cards. Individuals relying on loans from these sources may not have access to cheaper sources of financing.

Preliminary assessment

During the GFC, the spreads between lending rates and the cash rate increased for all loans. However, spreads for SME and personal lending increased by more than spreads for mortgages and corporate loans (Chart 2.2), which largely increased in line with banks’ funding costs.23 Terms of lending also tightened. This has generated concerns about the strength of competition in the SME and personal lending sectors.

Chart 2.2: Changes in spreads to cash rate for different loan types since September 2007

This chart shows the spreads for credit cards increasing by 5.5 percentage points from 2007 to 2014. For personal loans the increase is just under 5 percentage points, for small business loans it is around 2.5 percentage points, for housing loans it is around 1.75 percentage points, and for large business loans it is around 1.25 percentage points.  

*Spreads for small business loans are for residentially secured small business loans.

Source: RBA.24

However, the increase in SME and personal lending spreads reflects, at least in part, a re-evaluation of risk in these lending categories and a general increase in the price of risk. As SME and personal lending is more risky than mortgage and corporate lending, it follows that their spreads increased by a greater margin.25, 26 It is not clear if any of the increase in spreads was due to reduced competition.

The Inquiry would welcome views on whether there is evidence that spreads in SME and personal lending reflect reduced competition.

Policy options for consultation

Most policy suggestions relate to how the SME lending market operates, rather than the level of competition. The Funding chapter discusses options that may improve the funding environment for SMEs.

Some submissions suggest expanding comprehensive credit reporting (CCR). CCR was introduced in March 2014 to enable market participants to share consumers’ repayment histories. CCR expands on the previous credit reporting regime, where market participants could only share negative credit events, such as a default. The shift from a negative to a positive credit reporting system has the potential to promote competition by enabling credit providers to more accurately assess the credit worthiness of borrowers, and to compete for customers by offering risk-based pricing.

However, CCR is voluntary and the Inquiry understands that, to date, none of the major banks have participated. This is likely because the cost of sharing their information with competitors is greater than the benefit of gaining access to other competitors’ databases. Some submissions propose making CCR mandatory, which may improve the value of CCR for smaller lenders.

Some submissions also suggest increasing the number of fields reported to include additional information, such as outstanding account balances. This could further address information asymmetries in the credit assessment processes and enable risk assessment at a more granular level. These benefits would need to be balanced against privacy concerns, as well as the upfront investments credit providers make in establishing customer relationships.

Another option could be to extend credit reporting to SMEs. This may have the potential to improve SME credit risk assessments and improve SME access to funding.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • No change to current arrangements
  • Expand CCR by making it mandatory, adding new fields and/or extending it to SME lending

The Inquiry seeks further information on the following area:

Is there evidence that spreads in SME and personal lending reflect reduced competition?

Comparing and switching between banking products

Competition relies on consumers being able to compare the value of different products. Since the Wallis Inquiry, technology has enabled the growth of online aggregators and price comparison websites that better enable consumers to compare value. In the banking sector, aggregators have focused on mortgages, term deposits and savings accounts.

However, there is little gain in improving the capacity of consumers to compare the value of products if there are impediments to switching between products. The Government and industry have reduced switching costs for banking products since the Wallis Inquiry, and a number of industry trends will further lower costs in the future.

Preliminary assessment

Comparing banking products

Some product terms can reduce the functionality of aggregators. For example, account aggregators enable consumers to view several bank accounts through one interface and identify alternative banking products that may offer superior value. However, where a consumer permits an aggregator to access their account, this may constitute a breach of the account terms and conditions. Consequently, the consumer may have invalidated protections they would otherwise have been afforded in cases of fraud or stolen funds.

Switching banking products

Several submissions identify low rates of transaction account switching as an obstacle to improving banking competition. Roy Morgan Research estimates that 3.2 per cent of consumers switch their main financial institution each year.27 This means that, on average, consumers switch approximately every 30 years. The Government introduced a transaction account switching tool in 2011 to help consumers transfer their direct debits and credits. However, take-up of the service has been low, with only 17,500 people using the system in 2013.28

Some submissions argue that the Government should go further and introduce full account portability. The New Payments Platform industry initiative facilitated by the Australian Payments Clearing Association and RBA may assist in this regard. One of the platform’s build requirements is for consumers to be able to attach a unique address, such as their mobile phone number or email address, to their bank account. Implementation of this addressing system will begin in 2016.29 Direct debits and credits could then be made to addresses, rather than underlying bank account numbers, which would allow a consumer to change accounts without switching address. In addition, consumers with multiple accounts would be able to use multiple addresses. Such a system could also work for new banking products that do not use bank account numbers.

However, the introduction of the new platform would not connect existing direct debits and credits to consumers’ addresses. This means the benefits would accrue over time, as consumers roll over their direct debits and credits and attach them to their address.

Steps have also been taken to improve switching for mortgages. The Government banned exit fees for mortgages in 2011. Industry initiatives, such as e-conveyancing, are also likely to reduce switching costs. Future initiatives could further assist, including a national e-mortgage regime, standardised mortgage discharge forms and timelines, and improved online identity verification processes, as discussed in the Technology chapter.

Four pillars policy

In 1990, the then Government introduced a ‘six pillars’ policy whereby the four major banks and two major life insurers were prevented from merging with one another. This has since evolved into the ‘four pillars’ policy maintained today, which applies to the four major banks.

The policy arguably assists with both competition and stability. For competition, it ensures that the banking sector does not become overly concentrated, which could materially lessen competition. For stability, if larger and more systemically important banks fail, they tend to be more difficult to resolve in an orderly fashion, so four pillars may assist by limiting the size of Australia’s largest banks.

In its final report, the Wallis Inquiry recommended abolishing the (then) six pillars policy. It argued that general competition law was sufficient to address competition issues in the banking sector. This reflected the Wallis Inquiry’s philosophy that competition in the financial sector should be treated no differently to other sectors of the economy. The Wallis Inquiry also saw little stability benefit, given the major banks were already very large.

Successive governments have maintained the four pillars policy. The Inquiry views this as appropriate and does not plan to recommend changes. The banking sector is already concentrated; further significant concentration has the potential to limit competitive pressure in the market and reduce the choices available to Australian individuals and firms. Although general competition law may prevent a merger between the major banks, the Inquiry sees merit in retaining the four pillars policy.

The concentration and integration of the major banks

The major banks have increased concentration and integration in the banking sector through acquiring other banks and integrating with mortgage brokers. Mortgage brokers enable consumers to compare the value of different banking products better, including mortgages, personal loans and term deposits. The major banks have also integrated horizontally and vertically into other sectors of the financial system, including wealth management and insurance.

Increased market power

Some submissions argue that the increasing concentration and integration of the major banks is harming competition. They submit the major banks can cross-subsidise products to drive out competitors in some markets. Submissions also argue that the major banks’ market power has led to oligopolistic competition and higher prices for consumers.

The major banks have market power across a range of markets. However, it is not clear they are abusing this power. The ACCC has taken relatively little action against the major banks in recent years. The Inquiry would welcome views on the level and exercise of market power across the various markets in which the major banks operate.

Vertical integration of mortgage brokers

Vertical integration of mortgage broking may create conflicts of interest, which could hamper competition. Mortgage brokers can improve competition by enabling smaller players to access a broader range of consumers than their standard distribution networks would allow. However, vertical integration may have the potential to distort the way in which mortgage brokers direct borrowers to lenders. The extent of this issue is not clear. The Inquiry welcomes views on this issue.

The Inquiry seeks further information on the following area:

  • Is integration in the banking sector causing competition issues?
  • Is vertical integration distorting the way in which mortgage brokers direct borrowers to lenders?
  • If so, what would be the best way to limit the adverse impacts?

Lenders mortgage insurance

Lenders mortgage insurance (LMI) protects a lender against default by a borrower, if there is a shortfall after realising the security. Lenders use LMI to make loans to borrowers with low deposits (usually where the loan-to-valuation ratio (LVR) is greater than 80 per cent) or without a regular earnings record, such as the self-employed. About one-quarter of new mortgage loans are covered by LMI,30 which is generally paid by the borrower.

Preliminary assessment

Under Basel I, lenders were able to apply a lower risk weight to loans with a high LVR or to non-standard loans if they were covered by LMI. This incentive does not exist under Basel II for IRB banks, as APRA’s floor of 20 per cent for the loss given default on residential mortgages means that the risk weight is the same, whether or not the mortgage is covered by LMI.

Some submissions argue that, under these policy settings, the major banks will reduce or stop their use of LMI, as they can carry the default risk themselves and have no capital incentive. They state the LMI industry may not be viable as the market size reduces and major banks accept lower-risk, high-LVR loans, leaving higher-risk loans in the LMI pool. This may in turn reduce access to mortgage lending for those with low deposits or the self-employed. It could also increase the major banks’ competitive advantage over RMBS issuers and smaller ADIs that seek the risk protection of LMI.

Policy options for consultation

Submissions propose policy changes to re-establish the place of LMI in mortgage lending, including changes to capital standards to decrease the risk weights for insured loans. They contend such changes could improve the competitive position of smaller ADIs and non-bank lenders, maintain broad access to mortgage loans and assist with system stability by providing more capital in the system. However, this option could involve trade-offs:

  • There could be stability implications. In its submission, APRA states that the 20 per cent loss given default floor for housing lending has been set until IRB banks develop appropriate methodologies and estimates for a downturn period.
  • Decreasing risk weights for insured loans may affect the competitive situation between IRB banks and smaller lenders.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy option or other alternatives:

  • No change to current arrangements
  • Decrease the risk weights for insured loans

1 International Monetary Fund (IMF) 2012, ‘Australia:Addressing Systemic Risk through Higher Loss Absorbency—Technical Note’, IMF Country Report no. 12/311, IMF, Washington DC, page 7.

2 Australian Prudential Regulation Authority (APRA) 2014, Quarterly Authorised Deposit-taking Institution Performance Statistics, APRA, Sydney, March 2014. Note: this statistic captures all assets held by ADIs, not only assets associated with borrowing and lending.

3 Australian Competition and Consumer Commission (ACCC) 2008, Public Competition Assessment: Commonwealth Bank of Australia – proposed acquisition of Bankwest and St Andrew’s Australia, ACCC, 10 December.

4 Australian Competition and Consumer Commission (ACCC) 2008, Public Competition Assessment: Westpac Banking Corporation – proposed acquisition of St George Bank Limited, ACCC, 13 August.

5 Reserve Bank of Australia 2014, First round submission to the Financial System Inquiry.

6 World Bank 2013, Financial Development and Structure Dataset, World Bank, Washington DC, November.

7 Australian Prudential Regulation Authority (APRA) 2014, Quarterly Authorised Deposit-taking Institution Performance Statistics, APRA, Sydney, March 2014. Note: this return on equity statistic includes returns on all ADI activities, not only borrowing and lending.

8 Reserve Bank of Australia 2014, First round submission to the Financial System Inquiry.

9 Roy Morgan Research 2014, State of the Nation: Report 18, April.

10 Based on review of Canstar website on 20 June 2014.

11 Craig, A 2014, Banking Fees in Australia, Reserve Bank of Australia, Sydney.

12 Australian Prudential Regulation Authority 2014, First round submission to the Financial System Inquiry.

13 Reserve Bank of Australia (RBA) 2014, Chart Pack: The Australian Economy and Financial Markets, June, Sydney, page 29, viewed 20 June 2014.

14 For example, the Regional Banks’ submission to the Financial System Inquiry on behalf of Bank of Queensland, Bendigo and Adelaide Bank, ME Bank and Suncorp Bank proposes lowering standardised risk weights for mortgages to 20 per cent.

15 Submissions to the Financial System Inquiry include those by the Customer Owned Banking Association, the Regional Banks and Yellow Brick Road.

16 International examples include: Schich, S and Lindh, S 2012, ‘Implicit Guarantees for Bank Debt: Where Do We Stand’, OECD Journal: Financial Market Trends, vol 2012, issue 1, OECD; and Santos, J 2014, ‘Special Issue: Large and Complex Banks’, Federal Reserve Bank of New York Economic Policy Review, vol 20, no. 2, New York. Australian studies are scarcer, but include: International Monetary Fund (IMF) 2012, ‘Australia: Addressing Systemic Risk through Higher Loss Absorbency—Technical Note’, IMF Country Report no. 12/311, IMF, Washington.

17 Oliver Wyman 2014, Do Bond Spreads Show Evidence of Too Big To Fail Effects, April.

18 Westpac, RP Data, cited in Joye, C 2012, ‘Credit where it’s due to RMBS’, The Australian Financial Review, 2 November.

19 Australian Office of Financial Management 2013, Residential Mortgage-backed Securities, viewed 11 June 2014.

20 Reserve Bank of Australia 2014, First round submission to the Financial System Inquiry.

21 Reserve Bank of Australia (RBA) 2014, Statistical Table: Retail Deposit and Investment Rates – F4, RBA, Sydney.

22 Australian Bankers’ Association and Council of Small Business Australia 2013, Small Business: Access to Finance Report, Year to March 2013.

23 Robertson, B and Rush, A 2013, Developments in Banks' Funding Costs and Lending Rates, Reserve Bank of Australia, Sydney.

24 Reserve Bank of Australia (RBA) 2014, Statistical Table: Indicator Lending Rates – F5 and Statistical Table: Interest Rates and Yields – Money Market – Monthly – F1.1, RBA, Sydney.

25 Reserve Bank of Australia (RBA) 2014, Chart Pack: The Australian Economy and Financial Markets, June, RBA, Sydney, page 30, viewed 20 June 2014.

26 Australian Prudential Regulation Authority 2014, First round submission to the Financial System Inquiry, page 79.

27 Roy Morgan Research 2014, data provided to the Financial System Inquiry. Note: the statistic refers to the Australian population aged 18 years and over that switched their main financial institution in the 12 months before April 2014.

28 Treasury 2014, data provided to the Financial System Inquiry.

29 Australian Payments Clearing Association 2013, Real-Time Payments, Summary of RTPC Proposal to the Payments System Board, viewed 20 June 2014.

30 QBE 2014, First round submission to the Financial System Inquiry.