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Swan set to launch fifth pillar

Staff Reporter 4 minute read

Staff Reporter

Treasurer Wayne Swan is expected to introduce his planned 'fifth pillar' of banking to the federal cabinet today.

The new pillar would use the resources and muscle of the $73 billion credit union and building society industry to steal market share away from the majors.

Understandably, Australia’s credit unions and building societies are fiercely supportive of Mr Swan’s proposal.


But while the mutuals have thrown their support behind the competitive banking proposal, non-bank lender FirstMac has warned Mr Swan not to ignore securitisers in the current banking competition review process.

FirstMac founder and managing director Kim Cannon said FirstMac was calling for the continuation of the Australian Office of Financial Management?s (AOFM) investment support of Australian residential mortgage backed securities (RMBS).

The AOFM has invested $1.4 billion in FirstMac issued RMBS since November 2008.

Mr Cannon also said that while much recent commentary had focused on the mutual sector as a source of competition in lending markets, it was non-ADIs that had driven competition for more than 20 years.

“Ever since deregulation of the banking industry in the 1990s, non-ADIs have provided critical competition to the major banks,” Mr Cannon said.


“However, the sector is now hugely disadvantaged and if it is disadvantaged any further in the current reform process it will have dire consequences for competition in the lending market.

It was the competition that non-ADIs brought to the market in the 1990s that was largely responsible for the historic reduction in home loan margins as the major banks in particular were forced to reduce their margins in the face of eroding home loan market share.

“As a result of the financial crisis though, the non-ADI sector has been materially disadvantaged. This is due to the dislocation of the financial markets, the reduction in the availability of funding and the greatly increased cost of available funding that has ensued.”

Mr Cannon said some non-ADIs had left the market, including the ones acquired by banks. Those remaining were at a huge disadvantage as they did not have access to depositor funds, could not access wholesale / retail bond markets and did not receive the benefit of government guaranteed funding.

“The non-ADIs that remain in the market have been largely reliant on the AOFM investment mandate to maintain an active presence in the home loan market,” he said.

Swan set to launch fifth pillar
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