A spread of submissions for the first financial system inquiry in 17 years has fallen into two distinct themes – a battle between the big and the small, and a pile of cash looking for a home.
Joe Hockey had long called for such an inquiry and was quick to move after securing the job of treasurer last September.
His reasoning was that, while the system came through the 2008-2009 global financial crisis in “exceptional shape”, it was time for a “general health check” given much had changed in the way the economy operates since the Wallis inquiry in 1997.
Outgoing National Australia Bank boss Cameron Clyne says the inquiry is aimed at finding the right structure to support a strong Australian economy.
“There is no question that if the Australian economy is strong, then the banks benefit,” Clyne told reporters when announcing his retirement this week.
However, some submissions released this week say that benefit is not spread evenly.
The Customer Owned Banking Association – which represents credit unions, building societies, mutual banks and friendly societies – says the inquiry must deliver an end to the “age of entitlement” enjoyed by the big four banks.
Its submission discussed the so-called “too big to fail” banks – ANZ, Commonwealth Bank of Australia, NAB and Westpac – which are more likely to be bailed out by the government in a crisis.
COBA chief executive Louise Petschler said such a lopsided playing field posed a serious risk to the Australian economy.
“True competition can only be achieved if barriers and subsidies are removed, so smaller players don’t have to compete with one hand tied behind their backs,” she says.
She believes the big four should be forced to pay a levy for this protection.
However, the likes of the CBA and the ANZ don’t believe there is either such a guarantee, or that it can access funds more cheaply because of this perceived government prop.
Yet Greg Combet, who was a junior Labor minister during the GFC when the government provided protections for the bank industry, believes the issue will get a “pretty strong hearing” at the inquiry.
Combet, now a principal adviser at Industry Super Australia, says the inquiry’s chairman David Murray – himself formerly both a boss of the CBA and chair of the Future Fund – will want to review the implications of the guarantee and how efficient that is in the current system.
Coincidently, and separate from the submissions, the International Monetary Fund said in a report this week that government protection for banks considered too important to fail created an uneven playing field, excessive risk-taking, and large costs for the public sector.
“Policymakers should aim to remove this advantage to protect taxpayers, ensure a level playing field and promote financial stability,” it said.
Meanwhile, superannuation funds want greater access to invest in the nation’s much-need infrastructure, and a sector that looks set to balloon from a savings pool of around $1.75 trillion currently to a staggering $6 trillion by 2030.
An analysis for the submission by Industry Super Australia, the umbrella organisation for industry funds, expects that growth will give it larger assets than the banks.
The call is timely as Hockey is dangling incentives for the states to sell assets and then recycle the capital into productive infrastructure.
Hockey believes this provides opportunities for the super industry, given he has been frustrated to hear funds say that there is nothing they can buy in Australia and instead invest in projects overseas.
Industry Super Australia says faced with an infrastructure deficit of some $300 billion, super funds are “ideal partners” for projects with a long-term investment horizon, but it says the current bidding process is biased towards short-term financiers and contractors.
Australian Private Equity & Venture Capital Association Limited chief executive Yasser El-Ansary agrees that a shift to short-termism has also been detrimental to his sector, and hopes the inquiry results in freeing up opportunities for super funds.
“There is a very clear opportunity to remove roadblocks that deter some superannuation funds from backing private equity and venture capital firms to invest in Australian businesses,” El-Ansary says.
The inquiry will provide an interim report by mid-year and a final report in November.
However, Murray will give his initial thoughts on the inquiry when he addresses an Australian Business Economists lunch on May 1.