How the bank levy could end up hitting brokers

From Mortgage Professional Australia.

As Australia’s government indulges in another round of bank bashing, brokers could get caught in the crossfire, writes MPA editor Sam Richardson

At 10AM the ASX opened and the bank stocks began to plummet. ANZ, CBA, NAB and Westpac were hit, as well as Macquarie: nearly $14bn was wiped from their share prices in total. This would all have made sense on 10 May, the day after the government unveiled a new 6 basis point bank levy, but the price collapse occurred on 9 May, nine and a half hours before the budget was unveiled.

Evidently someone knew the bank levy was coming, if not the banks themselves.

“This new tax is not a well-thought-out policy response to a public interest issue,” commented Australian = Bankers’ Association CEO Anna Bligh. “It is a political tax grab to cover a budget black hole.”

Although it is equivalent to just 0.06% of a bank’s liabilities, and affects only the big banks and Macquarie, the levy is expected to bring in $6.2bn over four years. The government says the levy will apply from 1 July, although it is less clear when it will end, or how the banks will pay for it.

Raising rates isn’t an option, according to Treasurer Scott Morrison. “Don’t do it,” he told banks the day after the budget. “Don’t confirm their worst impressions. Tell them another story. Tell them you will pony up and help fix the budget.”

Rate rises and competition
Australia’s banks don’t appear to agree. Commonwealth Bank CEO Ian Narev has already warned that “higher costs are either passed on to customers through reduced service levels or higher pricing, or to shareholders through lower returns. There is no middle option to absorb costs.” While not explicitly stating they’ll raise rates, the other banks have made similar points to Narev’s.

Major bank borrowers’ interest rates could rise by 20 basis points, analysts from investment bank Morgan Stanley have predicted.

Martin North, principal of research firm Digital Finance Analytics, made a similar claim when speaking to MPA. “Because the mortgage book is half of the total book you assume there would be a 15–20 basis points hike in mortgage rates, if they put it all through.”

Although the levy will only affect the big five, refinancing your customers with the nonmajors may not be the best option, North warns. “If the big four reprice their mortgages I’m pretty sure the regionals will follow anyway, because they need to do margin repair on their books.”

Adelaide and Bendigo Bank CEO Mike Hurst and others in the non-major sector have welcomed the levy as a way to even the competitive playing field. Deloitte told MPA that concerns about competitors could dissuade the banks from making aggressive rate hikes. However, North says the non-majors still face a “significant competitive disadvantage” because of higher capital requirements.

Foreign-owned banks could be the main beneficiaries of the budget, according to the major banks. ING DIRECT and HSBC have the ability to raise funds from overseas while being exempt from the levy due to their small presence in Australia. Foreign-owned banks start from a low base, however: ING’s share of AFG’s lending was just 3.51% in February, while HSBC only resumed dealing with brokers in June.

“If the big four reprice their mortgages I’m pretty sure the regionals will follow” – Martin North, Digital Finance Analytics

Unscrambling the egg
Standing between major bank borrowers and higher rates is the ACCC. Morrison has tasked the ACCC with forcing the banks to explain future rate changes and ensure they don’t use rate hikes to pass on the levy.

Unfortunately for the Treasurer, explaining rate hikes is “like trying to unscramble an egg”, says DFA boss  North. “I think it would be impossible to identify which elements of funding, or the levy, would be responsible for moving prices up or down. There’s a whole host of reasons why, outside the levy, prices will continue to rise,” he explains. International funding is still expensive; the banks are still hindered by overly cheap loans from last year; APRA is forcing them to reduce interest-only lending, and, finally, capital requirements continue to increase. At the end of the year APRA will publish a paper which North expects to recommend raising rates and consequently rates on mortgages.

Therefore, says North, “we have not seen the end of the mortgage rate hikes”.

“There is no middle option to absorb costs” Ian Narev, Commonwealth Bank

Impact on brokers
The government’s bank bashing could end up hitting brokers.

“This levy comes at a time when bank earnings and profitability are already facing multiple headwinds,” warned credit ratings agency Moody’s, pointing to moderate credit growth, low interest rates and rising capital requirements. Coupled with further scrutiny of vertical integration by the Productivity Commission later this year, the banks have the incentive to take radical action.

Banks could save billions of dollars by cutting broker commissions, according to UBS. The investment bank claims that the cost of brokers is rising and accounted for 23% of the cost base of the major banks’ personal/consumer divisions in 2015.

Analysts Jonathan Mott and Rachel Bentvelzen wrote: “We estimate mortgage broker commissions add 16bp per annum to the cost of every mortgage in Australia, irrespective of whether the mortgage was broker or proprietary originated.”

Following the ASIC and Sedgwick reviews the banks will start to lower commission rates over the next few months, the analysts have predicted. “While mortgage brokers are unlikely to be happy with this outcome, we believe there is little they can do,” they said. Competition between banks would keep interest rates low, however, and “offset the additional repricing expected by the banks as they adopt the new Bank Levy”.

Sedgwick’s review gave the banks until 2020 to enact its recommendations, without explicitly recommending cuts to commissions. The consultation period for responses to ASIC’s review closed in June, making it unclear how banks would radically change commissions in time for the implementation of the levy on 1 July.

Whatever the outcome, the budget has created a $6.2bn reason for Australia’s banks to start making changes.

ASIC and AFP investigating bank levy leak

From Investor Daily.

The corporate regulator is working with the Australian Federal Police on an investigation into “suspicious trading” of major bank shares ahead of the announcement of the new bank levy in May’s federal budget.

ASIC officials confirmed to the Senate joint committee members on Friday that the regulator is conducting an inquiry into “suspicious trading” in conjunction with an AFP investigation into the leak of the bank levy prior to the release of the budget on 9 May.

In response to a question from Labor Senator and committee deputy chair Deborah O’Neill, ASIC commissioner Cathie Armour said the regulator is looking at trading in days before the release of the federal budget.

“As you can imagine, there is a high volume of activity in those stocks so it’s not a straightforward exercise,” Ms Armour said.

“We are working together with the AFP and considering whether there was any information that was inappropriately shared with third parties before the announcement.”

However, while ASIC is “making inquiries”, there is no formal investigation underway as yet, according to ASIC senior executive leader for markets enforcement Sharon Concisom.

Ms Concisom said the ASIC investigation has included interviews, but has not resulted in the issuance of Section 19 notices, which compel people to co-operate with ASIC.

Such notices would require a formal investigation, which is not yet underway, she said.

ASIC chairman Greg Medcraft said it was important that the general public understood the regulator is looking into the matter seriously.

Mr Medcraft encouraged people with knowledge of the leaks to volunteer the information to the regulator.

“Come to us before we come to you,” warned Mr Medcraft.

COBA – Opening Statement Bank Levy Inquiry

COBA’s opening statement focussed on the impact of the implicit guarantee which the large banks enjoy, which they says is distorting the banking market by providing the biggest players with an unfair funding cost advantage. They welcome the major bank levy as a modest step towards reducing this funding cost advantage.

COBA is the industry association for Australia’s customer owned banking institutions – mutual banks, credit unions and building societies.

We have 4 million customers, around 80 institutions across Australia, $106 billion in assets and roughly 10 per cent of the household deposits market.

This Bill is primarily about Budget repair but it is of course intended to contribute to a more level playing field in the banking market.

It comes as no surprise we strongly support measures to promote competition in banking because they are very clearly needed.

There is a big problem with competition in banking in this country.

In his second reading speech, the Treasurer noted that:

  • the banking sector is an oligopoly and that the largest banks have significant pricing power which they have used to the detriment of everyday Australians
  • the banking system is highly concentrated
  • major banks benefit from a regulatory system, including mortgage risk weight settings, that has helped embed their dominant position.

From our perspective, the most important component of the Bill is that it is intended to complement prudential reforms being implemented by the Government and APRA to improve financial system resilience and competition.

We support measures to reduce unfair competitive advantages enjoyed by the major banks.

One of these is the unfair funding cost advantage enjoyed by these banks as a result of the implicit guarantee provided by taxpayers due to the perception that the major banks are ‘too big to fail’.

COBA welcomes the major bank levy as a modest step towards reducing this funding cost advantage.

In relation to the broader prudential reforms being implemented by APRA and the Government, we note that the ‘too big to fail’ problem is the target of Recommendation 3 of the 2014 Financial System Inquiry report.

That recommendation calls for implementation of a framework in line with emerging international practice, to facilitate the orderly resolution of Australian ADIs and minimise taxpayer support.

The Government’s 2015 response has no specific implementation date, but says steps should be taken to reduce any implicit government guarantee and the perception that some banks are too big to fail.

The Government has endorsed APRA as Australia’s prudential regulator to implement this recommendation in line with that international practice.

We acknowledge that the ‘too big to fail’ problem is a very complex problem to solve but we would encourage the Government and APRA to continue to give this issue the highest possible priority.

This is because the ‘too big to fail’ problem tends to get worse over time. The unfair funding cost advantage creates incentives for major banks to become even bigger and more complex.

The 2014 Financial System Inquiry report said perceptions of implicit guarantees have costs, creating distortions in the market.

The report said credit rating agencies explicitly factor in ratings upgrades for banks they perceive to benefit from Government support, directly benefiting those banks. As has been said by previous witnesses, this was worth a two-notch upgrade for the major banks in 2014.

As of last month, at least in relation to one of the rating agencies, Standard & Poor’s, that two-notch upgrade is now three notches.

The implicit guarantee is distorting the banking market by providing the biggest players with an unfair funding cost advantage.

The regulatory framework helps the major banks in other ways.

Compared to major banks, customer owned banks and regional banks have to hold much more regulatory capital against mortgages. This gives the major banks another significant funding cost advantage.

APRA has formally designated the major banks as ‘systemically important’ and applied a capital surcharge on them of 1 per cent.

But this surcharge is right at the bottom end of the international spectrum of such capital surcharges, which range up to 6 per cent in some cases.

We have a banking market where major banks benefit from unfair regulatory capital settings and a subsidy from taxpayers.

The major bank levy is a modest but welcome step toward a more level playing field in banking.

So from our point of view, we look forward to APRA and the Government working on the broader prudential reform agenda to promote competition and resilience in the banking market.

Consumers stand to gain from a more competitive banking market where all competitors have a fair go.

NAB’s opening address – Senate Economics Legislation Committee on Major Bank Levy Bill

NAB’s address mirrored the ANZ approach. Whilst accepting the tax will be implemented, they call for a sunset clause, extension to foreign banks operating in Australia; and a review of implementation after 18 months. They also make the point the tax cannot be absorbed.

We are pleased to appear before you to discuss the major bank tax.

While limited, this Senate Inquiry is an important process and one that NAB and our Chairman Ken Henry has advocated for – to ensure transparency and a greater understanding of the consequences of this tax.

With me is our Treasurer Shaun Dooley. I will make a short statement and then we are both happy to take your questions.

Banking plays a vital role in the strength and stability of the Australian economy.

This has been well understood by governments in the past.

Historically, we’ve had constructive engagement on significant policy reform which has allowed everybody to fully understand the impact on bank customers, our business and the economy.

As Treasury Secretary John Fraser told this Committee just last month: “any rapid policy change or uncertainty can affect the confidence of businesses and consumers and this in turn can undermine growth”.

The major bank tax is rapid policy change and has created real uncertainty.

There are four key points that are central to our concerns:

Firstly, the lack of consultation and rushed process has contributed to the development of poor tax policy that will affect every Australian.

While the UK bank tax was introduced under vastly different circumstances, consultation with the industry there extended for three months.

In contrast, the major Australian banks had about 40 hours to provide submissions based on the draft legislation.

As a result, many questions remain. The impact on the economy is still not fully known and there will be unintended consequences that will need to be addressed.

Secondly, it has repeatedly been stated that the tax can be simply “absorbed” by the banks. No cost, such as a tax, can be absorbed by any business – it must be passed on somewhere.

Based on what we know to date and applied to NAB’s business as it stands, we estimate the cost of the bank tax on NAB would be around $350 million annually pre tax, or $245 million post tax.

No decisions have been made on how NAB will manage this additional cost. But the cost will be borne by one or a combination of these groups: our customers – borrowers and savers – our shareholders, our suppliers or our employees.

Thirdly, the inefficient design of this tax places the impacted major Australian banks at a competitive disadvantage in wholesale markets that are critical to a well-functioning economy.

In these markets the Australian banks compete against large and profitable global institutions that are not impacted by the tax – because their domestic liabilities do not exceed the tax’s $100 billion threshold.

And lastly, we need to be clear about the purpose and impact of the tax to ensure confidence in the Australian banking sector.

Offshore investors have voiced their concerns about the tax and what it says about relations between the Australian banks and the Government.

This is due to the surprise nature of the intervention and the “shock” it created – coupled with the lack of a clear explanation and apparent conflict with previous regulatory guidance.

Confidence in the Australian banking sector is vital to ensure Australia has access to off-shore funding and capital.

These global investors have choice as to where to invest their money and the lack of clear policy rationale has been of concern, and goes directly to confidence in our market.

Senators, we accept that this tax will be implemented. However we strongly urge you to consider the following three points:

A sunset clause so that when the Budget returns to surplus the tax is removed;

To widen the tax to include international banks operating in Australia; and

Commit to a review of the tax within 18 months of implementation to fully assess its impact and any potential unintended consequences.

ANZ’s opening address – Senate Economics Legislation Committee on Major Bank Levy Bill

ANZ’s address makes three points. The levy should be temporary, should be applied to foreign banks, and the costs will be passed on in one way or another.

Good morning and thank you for the opportunity to appear today.

With me today are Rick Moscati, our Group Treasurer, and Jim Nemeth, our Head of Tax. While ANZ is disappointed by the bank levy, we accept that it will become law.

Our aim today is to work constructively to ensure that the legislation is as fair and efficient as possible.

We appreciate the changes made already to the treatment of derivatives and that the rate of the levy is reflected in the Act.

I have three points to make briefly today in relation to our submission.

Firstly, as one of the principal reasons for the levy is budget repair, we think that the levy should cease when the budget returns to surplus.

Secondly, we believe the levy should apply to major foreign banks operating in Australia and exclude the offshore branches of Australian banks. This would be consistent with principles of international taxation, avoid double taxing Australian banks and mean that all major banks in Australia, foreign or domestic, are treated equally. Without the levy applying to major foreign banks, Australian banks will be at a significant disadvantage in the institutional markets where foreign banks mainly compete.

Further, we borrow money in offshore branches to lend to offshore institutional customers. If the levy applies to our foreign branches, it makes us less competitive overseas. This will constrain Australian banks’ ability to develop offshore business and serve customers in the region.
Recent amendments to the UK levy are consistent with this. That levy applies to large foreign banks operating in the UK and is being amended to exclude UK banks’ offshore liabilities.

The reasons for this approach include ensuring UK banks are not hurt by operating offshore and to tax foreign and domestic banks equally. The same rationale applies to Australia.

My last point is that we are concerned about the combined impacts of increased bank regulation and the levy.

We believe there should be appropriate reviews of how these policies interact.

Speaking to international investors recently, they share these concerns, not just in relation to the banking sector, but also in relation to broader investment in Australia.

The points I’ve made concerning a levy sunset and reviewing its cumulative impact with other policies would help alleviate these concerns.

Before I close and to anticipate your questions, we have not decided how we will respond to the levy. In any event, there are legal limitations to what I can say today.

However, we cannot ‘absorb’ the levy. Based on ANZ’s 31 March Balance Sheet, we estimate that the annualized financial impact of the levy would have been $345 million before tax.

It is an additional cost that the shareholders, customers and employees of ANZ will bear.

Our options are to reduce what our owners receive, reduce our costs or charge higher prices.

As announced last year, ANZ has already reduced what our owners receive by cutting our dividend. We are also already focusing heavily on reducing absolute cost levels. We have reduced costs over the last year and announced that we are working on further reductions.

ANZ will continue to work constructively with you and your Parliamentary colleagues to ensure that the levy is as fair and efficient as possible.

The government will likely get more from the bank levy

From The Conversation.

In this year’s budget papers, Treasury estimated that the bank levy will collect about A$1.5 billion in each of the next four years for the government. But this is actually a conservative estimate.

Labor has argued there will be a A$2 billion dollar hole in the bank tax revenue. This is based on the disclosure to the ASX of four of the five affected banks, on what they will likely pay government.

But the banks’ numbers assume there won’t be change to any decisions in response to the bank levy. Research shows this is highly unlikely, as bank customers have worn the cost for bank taxes like this, imposed after the global financial crisis in the UK.

In fact, if the economy keeps growing as many have predicted, and banks grow too, then the amount of revenue the government collects from the levy may even be bigger than Treasury estimates.

What we know about the bank levy

When it comes to what revenue the government can get from the bank levy, both the taxable sum, and the tax rate applied, determine what gets collected.

The budget papers specify the taxable sum as including “items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments” but not “Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme”. The bank levy will be an annualised rate of 0.06%, applicable for all licensed entity liabilities of at least A$100 billion from July 1, 2017. Small banks and foreign banks are exempt.

Although it is possible the bank levy would not be a deductible expense in calculating corporate income, precedent and statements by government indicate the levy will be deductible. Special taxes on the mining industry (including royalties and the petroleum resource rent tax), state payroll, land taxes, stamp duties and indirect taxes such as petroleum excise are all deductions in the calculation of taxable corporate income.

Errors in the assumptions about banks

Labor and banks also assume that the bank levy is a deduction in assessing corporate income. The preliminary data made public by four of the five affected banks indicates the gross revenue gain of the bank levy, less the reduction in corporate tax, will be less than the budget numbers.

That is, the net revenue reflects a 0.042% levy rather than the 0.06% rate. This also assumes shareholders will bear all of the net additional taxation.

But it also assumes the banks will not change any decisions. This is both a simplistic and an unlikely scenario.

In essence, the bank levy is a selective indirect tax on one of the inputs used by the large banks to provide financial services to their customers.

A more likely scenario is that the banks will seek to, and succeed in, passing forward most of the new indirect tax to their customers as a combination of higher interest rates and fees. From past experience, banks pass forward higher Reserve Bank of Australia (RBA) interest rates, just as they pass forward lower rates.

Given that the affected five banks account for over 80% of the market, together with the reluctance of most Australian business and household customers to switch banks, there is a high probability that most of the levy will be passed forward as higher bank interest rates and fees.

Should the banks pass forward most of the levy to their customers, the increase in bank revenue will match the increase of bank costs caused by the levy. That is, taxable corporate income will remain about the same. Then, the overall government revenue gain is given by the gross 0.06% bank levy.

The bank levy could even collect more

If the output and incomes of the five banks to pay the levy expand over the next four years, then we would expect additional revenue to be collected by government to increase over time. The budget papers, the RBA, international agencies and private sector economists all forecast economic growth. It’s unlikely that the big five banks would not also experience economic growth.

So the budget paper forecast that the bank levy revenue collection of about A$1.5 billion a year for each of the next four years, has to be on the conservative side.

The revenue estimates for the levy are forecasts or projections compiled in a world of uncertainty. So a lot is still up for debate, including not only the design of the levy but the future path of the economy in general and for the large banks in particular.

Details and assumptions underlying government estimates of the revenue from the bank levy are unclear. It would be an unusual precedent not to allow the levy to be a deduction in calculating corporate income tax, and so reducing the net revenue gain. But the implicit assumption of the bank released numbers of no decision changes by the banks is unrealistic.

If banks, as businesses in general, pass forward to customers much of an input tax, a large part of the first-round fall in corporate income, is offset by higher revenue. Government forward estimates of additional government tax revenue collected by the levy likely are on the conservative side.

Author: John Freebairn, Professor, Department of Economics, University of Melbourne

The bank levy is suddenly an even better idea

From The New Daily.

The planned $6.2 billion bank levy was a good idea on budget night, and two weeks later it looks like an even better one.

That’s because of a decision by ratings agency S&P Global to downgrade the outlook for Australian banks.

In its latest ‘banking industry country risk analysis’, S&P changed its assessment of Australia’s economic imbalances from ‘high risk’ to ‘very high risk’, due to “strong growth in private sector debt and residential property prices in the past four years”.

The move will cause an increase in the cost of longer-term funding for smaller banks and credit unions, but does not affect the big four banks or Macquarie Bank – the corporations in the frame to pay the bank levy.

For the smaller banks and credit unions, such as Teachers Mutual Bank, Police Bank, Credit Union Australia, Bank Australia and ME Bank, longer-term funding costs are expected to increase by 10 to 20 basis points.

One senior market economist told me on Tuesday that was a “fairly hefty hike”, which will manifest as either lower profits for those banks or higher interest rates charged to their customers.

A skewed market

The smaller banks and other ‘authorised deposit-taking institutions’ have long complained that the big-four banks have an uncompetitive advantage.

That’s because of the ‘four pillars’ policy, which Paul Keating set up in 1990s to keep at least some semblance of competition in the banking market, has left us with a handful of banks that are ‘too big to fail’.

The government is therefore in a position where it must bail out any of the majors during a crisis.

That means that when fund managers or other large investors buy bank bonds from the majors, they don’t demand as high a rate of return because there is effectively no risk.

Conversely, when they buy the bonds issued by the likes of Bendigo & Adelaide Bank, or Bank of Queensland, the small banks have to pay more for the privilege.

Banking writer and former RBA economist Chris Joye recently calculated the majors are saving about $5 billion a year thanks to the implicit guarantee offered by the government.

And that’s before you take into account the way negative gearing and the capital gains tax discount have acted to artificially expand their mortgage portfolios in recent years.

Ironically, the government-backed oligopoly is seen by some as a ‘free market’ not to be messed with.

One property adviser recently complained, for instance, that “I do feel like we’re living a communist society with the rules that are being imposed on a free market”.

Quite the opposite is true, in fact.

As long as government maintains the current settings, it’s the big banks that resemble the protected government-sponsored enterprises seen in communist China.

The national interest

It is true, as critics argue, that the money raised by the bank levy won’t come out of thin air.

The banks will either pass the cost onto borrowers or take a hit to profits, and therefore have to reduce shareholder dividends.

But there are two reasons why that argument runs against the interests of everyday Australians – even if they are shareholders or mortgage holders.

The first is that by protecting the big banks, the government gives the oligopoly its strong pricing power.

Their tight grip on the market means their profits constantly exceed reasonable returns on the capital they deploy – a fancy way of saying they cream off massive profits because they can.

Shareholders have been doing well for years at the expense of mortgage holders.

Secondly, if the big banks calmly pass on all the levy to borrowers, there will be an increased incentive for mortgage holders to seek a better deal from a smaller banks.

The bank levy is a way of returning some market power to the smaller players, to boost competition.

And as those smaller banks have just received yet another blow via the S&P downgrade, now is the perfect time to do it.

The real debate, if the politicians were brave enough to have it, is not whether the levy is needed – but whether it should be larger.

The Bank Tax Rumbles On

Interesting segment on ABC Insiders today exploring the bank tax, and highlighting some of the practical realities, and policy implications, as the legislation is developed.

Barrie Cassidy with The Guardian Australia’s political editor Katharine Murphy, Andrew Probyn from ABC’s 730 and The Saturday Paper’s Karen Middleton.



ABA says the Federal Government must open up the major bank levy for public scrutiny

The Federal Government must open up the major bank levy for public scrutiny, the Australian Bankers’ Association said today.

“The four major banks have met Treasury’s extraordinarily tight timeframe to lodge their submissions this morning under strict confidentiality,” ABA Chief Executive Anna Bligh said.

“It is now time for the Government to reveal when it will release the legislation to the public – after all, this tax will affect millions of Australians who own shares in banks or are bank customers.

“At the moment we can’t quantify the impact of this tax on banks, and the flow on effects to customers, because the legislation has not been in the public domain.

“The ABA calls on the Government to provide more clarity as to when the public will be able to see the major bank levy legislation,” she said.

The Big Four Banks Are By Far the Most Publicly Subsidised Companies in the Country

More From Christopher Joye in the AFR.

According to RBA research in 2015, the “major banks have received an unexplained funding advantage over smaller Australian banks of around 20 to 40 basis points on average since 2000”.

While advisers say Morrison does not want to state on the record that the new levy is a tax on the implicit government guarantee of the big banks’ wholesale debts for fear of fuelling moral hazard, he cited exactly the same 20 to 40 basis point subsidy on Insiders on Sunday to rationalise it.

This accords with our estimates that the artificial increase in the majors’ senior bond ratings by two notches from A to AA- on the assumption they will always be bailed out lowers their current cost of capital by 17 basis points annually. (Macquarie’s rating gets upgraded from BBB+ to A using the same logic.)

The RBA further found that the “funding advantage for the major banks is significantly larger for subordinated debt, perhaps due to the greater potential for losses in the event of a default”, which our research also confirms.

Even in the savings market, where ratings are less salient, a simple comparison of the six- and 12-month term deposit rates offered by AMP, Bank of Queensland, Bendigo & Adelaide Bank, and Suncorp, which all sit in the A band, reveals that they are on average forced to pay 26 basis points more than the majors for this money.

The RBA’s 20 to 40 basis point estimate of the too-big-to-fail funding advantage implies that the majors capture an annual taxpayer subsidy worth more than $5 billion from their implicit government guarantee (using the wholesale liabilities identified in the budget). This makes the majors by far the most publicly subsidised companies in the country, receiving benefits that are more than 10 times larger than the $415 million of support the car industry (a favoured political target) received in 2013.

And none of this analysis accounts for the subsidies inherent in the $200 billion-plus of emergency liquidity all banks can tap in a crisis at a staggeringly cheap rate of just 1.9 per cent via the always-generous RBA