Big banks' 'too big to fail' guarantee obsolete, ME Bank chief says
26 May 2017
Mr. McPhee says the implicit guarantee clearly helped the big four banks dodge a credit rating downgrade earlier this week when Standard & Poor's (S&P) cut the status of 23 financial institutions including ME Bank.
"The four major banks and Macquarie Bank weren't downgraded because of their too big to fail status so that's done nothing to level the playing field," Mr. McPhee told The World Today.
"This too big to fail implicit guarantee is providing them [the major banks] with an explicit benefit and that in effect has been provided by you and me — the taxpayer."
In announcing the ratings downgrade on second-tier institutions on Monday, S&P reaffirmed the status of major banks "reflecting our expectation of likely timely financial support from the Australian Government if needed".
But Mr. McPhee said the S&P downgrade "more than removed" any impact of the 0.6 percentage point bank levy announced in the federal budget in leveling the playing field.
Mr. McPhee argued that the "too big to fail" status for the big four needed to be removed, with the bank levy possibly ratcheted up, given that the systemic risks of the global financial crisis have now faded.
ME Bank and other junior banks have supported the levy as fair and appropriate, and Mr. McPhee has questioned whether the levy "is the right amount" to improve competition.
The comments echo many of the views of Bank of Queensland chief executive Jon Sutton, who was irate at his bank's downgrade at the hands of Standard and Poor's.
"We have one of the highest capital ratio levels of any bank in Australia," Mr. Sutton told The Business.
"What is perplexing is the major banks did not have a credit downgrade.
"What I would be advocating to level the playing field is around what APRA's view is around [being] unquestionably strong, and further capital raising may be needed for the big four banks rather than the levy."
Mr. McPhee stopped short of endorsing a royal commission into banks but conceded it might be the right option
if proposals for better self-regulation fail.
"I just think a royal commission, to be honest, would just kick the can down the road further," he said.
"We're happy to make whatever contribution we can to the debate that's going on and acting in the customers best interests because it's the right thing to do."
Mr. McPhee denied there was a rift within The Australian Bankers' Association (ABA) between the major banks who opposed the levy and second-tier lenders who have welcomed it.
But he said it was important for the ABA not to speak on behalf of all members but subsets of members when it came to the Government's proposed levy.