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ANZ response to FSI Interim Report - Full response

The Australian banking sector is competitive, concentrated, stable and resilient. Customer satisfaction is high and consumers have access to an extensive range of products and providers.

Although tested during the global financial crisis (GFC), Australia‟s financial system performed well relative to its international counterparts. Australian taxpayers did not bail out an Australian Authorised Deposit-taking Institutions (ADI) and other measures, such as the wholesale funding guarantee, generated revenue for taxpayers. In response to the GFC, Australian banks and regulators have taken material steps to increase the resilience of the financial system.


A central focus of the Inquiry is minimising risks to taxpayers arising from any future shock. ANZ considers that the Australian banking system has robust features that limit instability in the event of an external shock and strong capacity to respond to a crisis. The interim report notes that it is hard to eliminate completely perceptions that some institutions are too-big-to-fail (TBTF). Internationally these pressures have been felt most acutely where governments bailed out failing financial institutions with taxpayers‟ money.


The significant strengthening of the system since the GFC, along with the wide range of other structural protections inherent in Australia‟s financial system, obviate the need for additional loss absorbency. It is estimated on a consistent basis that Australian bank common equity capital ratios are at the 75th highest percentile compared to global peers. Regulatory strengthening that has been implemented or is planned, including the APRA Domestic Systemically Important Bank (D-SIB) additional capital charge, will protect a capital level of 5.125 per cent against an extreme, one in 5000 year event. Further increasing capital requirements or loss absorbency will come at a material cost and would deliver limited additional benefit.


The interim report does not contain a compelling case that further strengthening would provide additional benefits to the financial system. TBTF arguments, dealing with perceptions, do not first demonstrate that there is a need to take additional measures to ensure that the taxpayer is not „on the hook‟.


Many efficient, low cost measures can be taken to improve system resilience, productivity and economic growth. APRA could work more actively with ADIs using standardised risk weighting to obtain Internal Rating Based accreditation. Gaps in regulator resolution powers can be closed and transparent internationally harmonised information on capital ratios should continue to be progressed. 


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