Major bank levy and more regulation of the banking system
A new levy of 0.06% will be imposed on major banks from 1 July 2017. This represents a major new tax on our financial institutions.
It will apply to all Authorised Deposit-taking Institutions (ADIs) with licensed entity liabilities of at least $100 billion, and will be calculated quarterly. The levy will not apply to liabilities such as additional Tier 1 capital and deposits of individuals, businesses, and other entities protected by the Financial Claims Scheme. It will apply to items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments.
This measure states that it ‘represents a fair additional contribution from our major banks’ and will ‘provide a more level playing field for smaller banks and non-bank competitors’.
A residential mortgage pricing inquiry will be conducted by the Australian Competition and Consumer Commission until 30 June 2018, to facilitate the introduction of the levy. Relevant ADIs will be required to explain any proposed changes to residential mortgage pricing including changes to fees, charges, or interest rates by those ADIs.
Other measures were announced to provide a more accountable and competitive banking system including:
- Requiring banking executives to be registered with APRA, strengthening APRA’s powers to remove and disqualify senior executives, new penalty provisions and deferral of remuneration for senior executives. Funding will be provided to APRA to introduce and administer the new legislation
- Additional funding to APRA to undertake new regulatory activities to support a stable, efficient and competitive financial system, including responding to new financial system activities and products
- A new one-stop shop for dispute resolution will be introduced from 1 July 2018 being the Australian Financial Complaints Authority (AFCA). It will provide financial services consumers, small businesses and retail investors with access to a free, fast and binding dispute resolution service. Australian Financial Services Licensees will be required to be members of AFCA. It will replace the Financial Ombudsman Service, the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal (which will be wound down and no longer operating from 1 July 2020). Funding will be provided to the Australian Securities and Investments Commission (ASIC) to ensure AFCA delivers an effective dispute resolution service
- Additional funding to ASIC to broaden ASICs financial literacy program.
Imposing a new tax on our very strong financial institutions and subjecting them to more regulation seems likely to be a popular move.
However, we also note that another Government goal is to improve housing affordability. Whether the costs of this levy and regulation will be passed on by the banks to people with mortgages through interest rate increases, remains to be seen.