Small banks at risk in APRA reform

New warnings have emerged that a shake-up of liquidity standards, sparked by the collapse of Silicon Valley Bank and Credit Suisse, could rip more than $100m in profits from customer-owned banks.

Treasurer Jim Chalmers. Picture: NewsWire / Martin Ollman

Jim Chalmers has been warned that a shake-up of liquidity standards, sparked by the collapse of Silicon Valley Bank and Credit Suisse, could boost the lending dominance of the big four amid new claims more than $100m in profits will be ripped from ­customer-owned banks.

The Australian Prudential Regulation Authority’s proposed Minimum Liquidity Holdings regime overhaul – intended to reduce contagion risks in stress events – has sparked fears that mutual banks, credit unions and building societies could be forced to close.

Ahead of the Reserve Bank being grilled in parliament on Wednesday over the cessation of its longstanding Commonwealth Liquidity Fund, The Australian can reveal the Treasurer has been directly lobbied by MPs to block APRA’s proposed changes.

The Liberal deputy chair of the standing committee on economics, Garth Hamilton, expressed concerns about the proposed shake-up in the Coalition’s joint partyroom meeting on Tuesday and was strongly backed by North Queensland MP Warren Entsch.

Mr Hamilton told The Australian there was a “reason that we’ve applied a proportional risk approach to capital and liquidity requirements in Australia’s banking sector. And that approach has enabled a level of competition from the smaller banks.”

“The proposed changes would apply the same approach that has been applied to the big banks right across the board,” he said.

“My concern would be that this will price smaller banks out of the market. It will reduce competition and impact lending capability for households and small businesses across Australia.”

Mr Hamilton said he had also “sighted independent research that puts the figure of $100m on the hit to profits for customer-owned banks.”

On May 31, he wrote to Dr Chalmers warning that five million Australians used mutuals, credit unions and customer-owned banks and APRA’s proposal would have an “anti-competitive impact” and place smaller banks at a “disadvantage”.

“It is wrong to suggest that the Australian banking system is not different from the concentrated, corporate-driven and unprotec­t­ed system that underpinned Silicon Valley Bank,” he said.

Mr Entsch told The Australian that one reason why there was some reasonable competition in the banking sector was because the same compliance requirements did not apply across the board. “It beggars belief that they are not talking about changing it to satisfy the needs of the big banks,” he said. “It will put these banks out of business.”

Customer Owned Banking Association chief executive Michael Lawrence told The Australian he was “concerned the proposed changes will erode vital competition in a market dominated by a handful of major players, noting APRA’s consultation proposal acknowledges the adverse impacts on some smaller banks”.

“We remain committed to working with APRA to find a sol­ution that allows Australia’s ­purpose-led banks to continue providing much-needed retail banking competition, and we look forward to clarity from APRA regarding the next steps in the consultation process,” Mr Lawrence said.