House debates
Monday, 4 November 2024
Private Members' Business
Banking and Financial Services
7:00 pm
Aaron Violi (Casey, Liberal Party) Share this | Link to this | Hansard source
I want to commend the member for Groom for this very important motion. Banking, as we know, impacts us all. Every Australian and every business is impacted, as are all of our communities. We particularly need to make sure that we have competition in the sector and that we support smaller banks to hold those bigger banks to account.
The impact of regulation that's not thought out, or overregulation, can be crippling in any industry, but particularly in banking. We already know that there are 130 new regulatory changes that banks are having to deal with. Overregulation stifles growth, stifles innovation and stifles productivity. We need to always look to get the balance right in protecting consumers, making sure the frameworks are correct, but not overregulating to cause more harm than good.
And we should never forget that overregulation entrenches big businesses over small businesses, because big businesses have the scale to amortise their costs across all consumers, across all of their companies. They also have the resources to invest in more staff to make sure they can be up to date with those regulations, and it actually creates a competitive advantage for those big banks versus small banks.
It is crucial that we support small banks. One example of small banks that could've been negatively impacted through these changes is the Bendigo community banks. Bendigo Bank plays a huge role in my community. We've got the community banks of Mount Evelyn, Belgrave, Upwey, Monbulk and district, Mooroolbark, Healesville, Woori Yallock and district, Wandin-Seville, Warburton and Yarra Junction district. All of these banks work in partnership with Bendigo Bank, but it's really important to understand they're community led; it's not just in their name. They are led by volunteer boards. I want to thank all the volunteers that give up so much of their time to make sure that the banks are run well and are profitable. They turn up at many community events. I'm lucky enough to spend a lot of time at community events with the volunteer boards from the banks.
One of the other crucial roles that a Bendigo Bank plays is giving back to our community. They have given back, over the last 20 years, tens of millions of dollars to sporting clubs, community groups, charities—to those in need. I know, when the Mount Evelyn Football Netball Club were lucky enough to get their rooms redeveloped, it was a partnership between the state and federal government and the local councils. Significant funds from the Mount Evelyn community bank went into making sure the fit-out could be properly done to make sure they had a quality facility, particularly as the growth came through in their women's programs.
Without community banks, our community wouldn't be as strong as it is. That's why we need to get regulation like this right. We have to ensure that they can remain profitable and we have to ensure that they're serving the community. The other thing a community bank will do, which we have not seen other bigger banks do, is make sure they have a footprint in the community through infrastructure—through a physical bank—which ensures those Australians that aren't tech savvy or are concerned about scams can walk into the bank, have a conversation, make sure all of their data is being protected and deal with their transactions as they need to.
At the same time that my office was receiving complaint after complaint about the big four banks leaving our community, I stood with pride at the Community Bank Mount Evelyn as we opened their new shopfront, just two weeks ago.
It was an investment in funds in our community to make it more open and more engaging, but it was also a signal to the Mount Evelyn community that the Bendigo Bank is there to stay. Every Bendigo Bank across my community, in the Upper Yarra and the Dandenong Ranges—all those banks I mentioned—has a physical location so people can walk in, have a conversation and get the answers they need to their questions. Yes, there is a cost in that. But they see that cost not as something to wash away but as a benefit to the community. That's what they stand there to do. Every time APRA or the government look to make regulation and laws, they need to make sure they get that balance right and allow our smaller community banks to continue to flourish and drive competition in the sector.
7:05 pm
Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to this | Hansard source
At the start of this contribution, I think it's worth taking a step back and asking why we have prudential regulation. Essentially we have prudential regulation for two main reasons. One is to ensure that financial institutions are operated in a way that is prudent and safe and that those institutions have good governance and appropriate capital holdings. That is of great importance to our community. But the second reason is of even greater importance to our community. There's prudential regulation of our banks so that there is stability of the overall financial system. Prudential regulation requires that banks hold sufficient capital, that banks have suitable governance and that banks undertake appropriate scenario planning. That's because we don't want large organisations being run in such a way that they're at risk.
The second aspect, and this is critical to regulation of the financial sector, is that there are systemic risks because banks are interconnected in the way that they operate, because banks, as part of the financial services sector, are interconnected with all other parts of our economy and because banks are so large. So it's absolutely critical for our community that our financial system has a degree of stability. If there was systemic risk in our financial system and if things were not regulated in an appropriate way, we would see things like the GFC bear their ugly heads more often. So APRA's role is absolutely critical, and I think that piece of context is really important.
What are the kinds of rules that we talk about in this situation? As I alluded to, the rules in the prudential regulatory space are largely around banks holding sufficient capital, appropriate governance and scenario planning, appropriate stress testing and modelling of risks. The importance of Australia's well-managed prudential setting is borne out in many instances. Most recently we saw, for example, the collapse of the Silicon Valley Bank, the carnage of all the devastated businesses left in its wake and the spectre of systemic risk in the US and European systems. We were spared from that. That's just one of a number of examples of the importance of solid prudential regulation by APRA. Key to this is not just that APRA undertakes sound regulation in relation to capital holdings and in relation to stress testing but also that it's independent. This independence of APRA has been instrumental in its success over a long period of time.
Other speakers on this motion have pointed to the fact that we need to be cognisant of the importance of small banks and customer owned banks in our system, and I agree with that. In the competition inquiry that I chaired, undertaken by the House Economics Committee, we looked at the important role of small banks and of customer owned banks. We need to have competitive pressure in our system. That is vitally important. But there are balancing acts here that a prudential regulator must undertake. That's why, in addition to bearing in mind the importance of the role that customer owned banks and small banks play, as alluded to in this motion, it is critically important that the prudential regulator has an eye on that systemic risk and the good management of our large banks.
The analysis that was undertaken by APRA in relation to some of the non-big-four banks was undertaken in a targeted way. It was undertaken with strong levels of engagement and in the way that you would expect of an independent, robust, rigorous regulator. The motion alludes to the fact that some of the regulation was unnecessary, but I would simply make the point that it is critical that we have fit-for-purpose regulation which balances a number of interests. Critical amongst those is the systemic stability of our system.
I would also make the point that this government, in addition to supporting the ongoing role of APRA, which is reflected in the analysis that it has undertaken in relation to the non-big-four banks, has undertaken significant reforms to reduce the amount of red tape and overlap in our regulatory system—for example, with the regulatory grid initiative, which was something that came up on many occasions in the competition inquiry that the House Standing Committee on Economics undertook. It was something which was supported by the small banks, the medium-sized banks and the customer owned banks. It was also supported by the big four banks, mind you. It was supported by the fintech sector, it was supported by insurers—right across the financial services sector. This government has taken action on that. Let's look at what this government has actually done compared to the 10 years of inaction before that.
7:10 pm
Jenny Ware (Hughes, Liberal Party) Share this | Link to this | Hansard source
I rise to speak on this motion with regard to the APRA requirements for smaller banks. I will start by commending the member for Groom for bringing this motion.
The regulation that is proposed is a bit complex, so I'm going to attempt to bring it down to a simpler level. Essentially, in November last year the Australian Prudential Regulation Authority, APRA, announced it was investigating tighter liquidity and capital requirements for smaller authorised deposit-taking institutions. When it made this announcement, however, APRA did not provide any evidence to justify the change. It seems that APRA had failed to consult with industry, and it provided no evidence to support the change in policy. So, straightaway, when a regulator with the power of APRA conducts an inquiry and there's a lack of consultation in that way, it does raise serious questions. In Australia we have a banking sector that is already subject to considerable prudential regulation, and I think overall it's intelligent in its approach to ensuring the banking sector's resilience to financial market stress. These were the sorts of reasons that were put forward, fairly broadly, as to why these changes to liquidity and things were required.
What this is actually about is a power imbalance between our big four banks and our smaller community banks and other mutual societies and organisations. It is not good when we are seeing competition eroded between these organisations. The ones who suffer in the end are, of course, the Australian consumers. We on this side believe strongly in the powers of markets, in the power of entrepreneurial approaches to everything, including the financial sector. In particular, we believe in competition. The changes that have been proposed will result in less competition, less access to capital for consumers and, overall, higher costs for consumers.
I think we need first of all to look at the very important role that smaller banks and financial organisations play in our community. Because of their very nature, community banks tend to channel most of their loans to the neighbourhoods where their depositors live and work, helping to keep communities vibrant and growing. We heard the member for Casey talk about the number of banks and organisations within his electorate that contribute significantly to all of the activities within the local community, and I note in mine, in particular, their support for local sport and local charities. I think that community banks have a real presence in the community. One of the biggest complaints I receive in my office is about bank closures. But community banks, because they do have a physical presence—they have tellers there, they have real people—provide invaluable assistance to elderly people and people with a disability who may, for example, be unable to access internet banking because they're vision impaired. They may be people with a disability. They may be people that simply do not have internet access; there are still plenty of those in Australia. These are the sorts of very direct services that these community banks provide, and that should be encouraged.
Community banks also provide very important competition, particularly within the housing sector. At a time when the bank of mum and dad has become the sixth-biggest lender in Australia, we are approaching a situation where whether or not you end up owning a home will depend upon the circumstances of your birth. There is a role, therefore, for these smaller banks to assist, often in circumstances where the larger banks will refuse first home buyers. So it is extremely important to our side that we maintain the strength and integrity of these smaller banks. (Time expired)
7:15 pm
Tania Lawrence (Hasluck, Australian Labor Party) Share this | Link to this | Hansard source
I am a member of the House Standing Committee on Economics and regularly hear from the Australian Prudential Regulation Authority. APRA does essential work in helping to ensure that our financial system is the best that it can be. Of course, there will always be room for improvement, and part of our role as parliamentarians and committee members is to find ways, sometimes legislative ways, to help APRA improve. That said, it is part and parcel of the role of APRA, as with all such authorities, that it be able to do its work independently. The member for Groom is not a stranger to the work of the House economics committee, given that he is a member of it, and he therefore knows this.
The independence of APRA is a part of the trust that underpins its regulation activity, and the government respects that independence. Our well-regulated banking sector enables us to better weather crises. We have seen runs on banks and building societies from time to time, and, when there is a global economic crisis—which also occurs—we need to ensure that we are not just willing to deal with the threat but that we are able to do so. The limitation of liquidity risk is central to APRA's role. The member for Groom used the word 'unnecessary'. None of this is unnecessary—quite the opposite.
The Silicon Valley Bank collapse in March 2023 sent shock waves around the USA and around the world. It was the third-largest banking collapse in US history. Banking systems in different parts of the world experience challenges and crises from time to time. It would be nice to feel that some countries are immune and that a banking crisis somewhere else in the world does not hold lessons for Australia. In fact, the interconnectedness of the global financial system means that contagion is a real and significant danger both within and between national systems. The year 2008 taught us that quite clearly.
APRA are considering changes in the liquidity and capital requirements for smaller banks in Australia and are doing so in the wake of the recent Silicon Valley Bank collapse. It is not a coincidence. Arguably, any regulator in any country around the world which does not review its settings on a regular basis and particularly after a spectacular failure, which is what the Silicon Valley Bank was, is simply not doing its job. The concerns about the Silicon Valley Bank that motivate this review are real. The Australian Financial Review describes that bank as having been 'eviscerated' in the course of just two days.
APRA are at the sharp end of our efforts to ensure that our system as a whole is healthy enough to withstand a shock to one part of it—to guarantee that the failure of a bank won't cause a contagion that infects others, including the larger banks. APRA commenced its consultations on this matter a year ago. The proposals involve a narrowing of the gap in requirements between banks of different sizes, and they do not otherwise propose to treat smaller lenders in the same way as large ones.
As I say, a responsible regulator cannot simply shy away from the need to reconsider its settings, and APRA has not done so in a vacuum. Contrary to the statement in this motion, it received 35 submissions from entities, individuals and industry bodies during the formal three-month consultation period, and reached out to do further work with industry stakeholders. APRA now proposes that banks subject to the Minimum Liquidity Holdings regime for calculating the liquidity requirements will be required to adjust the value of their liquid assets regularly for movement in market prices and that all banks must be operationally ready to provide certain key information regarding their financial position when requesting exceptional liquidity assistance from the Reserve Bank of Australia. These two measures will come into effect from 1 July 2025. Further action will be considered, and, in the meantime, APRA expects all institutions to take steps to improve the diversification of their portfolios to support liquidity.
APRA has here struck a balance between consumer safety, competition and efficiency. The member for Groom doesn't like the balance. The regulator is independent. I am alive, however, to the concern around the need to support competition in the sector and to support our community-owned banks, among others. The introduction of a financial sector regulatory initiatives grid by the Albanese government on the back of the House Standing Committee on Economics report into competition will— (Time expired)
Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source
There being no further speakers, debate is adjourned and the resumption of the debate will be made an order of the day for the next day of sitting.
Federation Chamber adjourned at 19:2 1