Banks routed by $6.2bn tax slug

Big banks will be hit with the biggest regulatory shake-up since the GFC, including a $6.2bn levy on bank borrowings.

Commonwealth Bank CEO Ian Narev.

Big banks will be hit with the biggest regulatory shake-up since the global financial crisis, including a $6.2 billion levy on bank borrowings, bigger fines for bad behaviour and competition changes that are hoped to strengthen the hand of consumers.

Arguing the government wanted a fairer deal from the major banks, Scott Morrison has also turned to them to help fund the budget, with the equivalent of 5 per cent of their collective profits to be raised over the next four years from a new levy on liabilities that is likely to revive memories of the resources super profits tax.

“The banks can do more to help budget repair,’’ the Treasurer said yesterday.

The banks targeted in the measures are the nation’s five biggest by assets: ANZ, Commonwealth Bank, National Australia Bank, Westpac and investment bank Macquarie Group.

Shares in the major lenders were savaged yesterday, losing a collective $14bn as speculation of the measures swept the market before details of the new tax were released last night.

The measures come in the middle of a bank profit season that is expected to see $32bn of profits delivered this financial year.

It drew swift criticism from former Commonwealth Bank chief executive David Murray, who last night labelled the measures as “bad policy”, warning it could affect the stability of the banks.

“The whole point of the structure is that the banks intermediate the current account deficit and to do that they need to be unquestionably strong. To the extent that you weaken that, you weaken the structure,” Mr Murray said.

Tapping into popular anti-bank sentiments following a series of financial advice, life insurance and financial markets scandals, the government will also introduce fines of up to $200 million for breaches of new misconduct rules.

“For the system to be fairer there needs to be greater competition and accountability — now,” Mr Morrison told parliament.

The changes are the latest in a series of hits on the banks and are expected to provoke a furious response from the industry. Banks say they are already reeling from nearly 20 inquiries — the bulk of these initiated by the federal government as well as moves by regulators to curb lending excesses. The latest includes a Productivity Commission review outlined this week into whether major banks should split their retail business from their wealth management arms. But they have so far escaped a royal commission, which the Labor opposition, minor parties and some members of the Coalition have supported.

Among the measures last night, the government announced:

• An Australian Fin­ancial Complaints Authority to act as a one-stop shop for customers of banks and other financial services business to resolve disputes and get binding outcomes, as recommended by the Harper Review.

• A banking executive accountability review regime requiring all executives to register with the Australian Prudential Regulation Authority and face deregistration, disqualifications and the stripping of executive bonuses for breaches.

• Mandatory reporting requirements that penalise banks who hide misconduct.

• Fines for bank misconduct starting at $50m for small banks and $200m for big banks.

• A permanent committee inside the competition regulator to investigate competition issues, as recommended by the Coleman Committee

• An open banking regime from 2018 that gives customers greater access to their own data held by the banks.

The measures are headlined by a new levy on the banks’ liabilities is expected to raise an average of $1.5bn over the next four years and accounts for almost 70 per cent of the revenue increases from tax increases in the 2017-18 budget.

It is the latest in a series of attempts worldwide to hit banks with the cost of repairing damaged budgets and imposes a charge for the implicit guarantee against failure that they receive from the taxpayer. The last time this was done was during the global financial crisis, when the government guaranteed deposits — which count as liabilities for the banks — and rented its AAA credit rating to the banks in an attempt to keep the financial sector ticking over.

But it is the first time the levy has been structured this way, with the levy charged on banks with liabilities of more than $100bn, after excluding customer deposits below $250,000 and the extra capital that banks are required by regulators to raise as insurance against another downturn in the economy. But it will catch corporate bonds, commercial paper and certificates of deposit among other instruments used by banks to fin­ance lending activity in Australia.

The government has argued that the measure is important to budget repair and has been structured to make it difficult for the banks to pass on to consumers.

But analysts at UBS last night suggested the banks could attempt to raise rates on their outstanding lending by as much as 12 basis points to recoup the additional cost imposed by the levy and maintain returns to shareholders.

Preliminary modelling by accounting giant PwC also suggested the levy could act as a drag on the broader economy, raising the cost of capital and deducting $2.6bn from gross domestic product over the four-year forward estimates.

Banks have just been through a phase of repricing their loan books in moves claimed to flow from increased funding costs.