‘Throwing stones in a vacuum’: banks resist ACCC deposit probe

afr.com:

Banks and their investors are warning of “potentially devastating effects” to the economy from the competition watchdog’s probe into deposit pricing, suggesting it could threaten the stability of the financial system and may crunch the sector’s wafer-thin profit margins even further.

Lenders and institutional shareholders are urging the Australian Competition and Consumer Commission to consider various funding cost drivers beyond the Reserve Bank’s cash rate and balance sheet pressures, in its inquiry ordered by Treasurer Jim Chalmers.

The investigation was prompted by concerns successive RBA cash rate rises were not being passed on to savers.

ANZ said banks were incentivised to compete harder for deposits since the expiry of pandemic-era low-cost funding from the RBA. Kate Geraghty

In submissions published by the ACCC, banks say the deposit market is highly competitive and point to a range of products, including term deposits, offering higher interest rates than transaction accounts.

Commonwealth Bank warned that making it harder to raise retail deposits could increase risk in the banking system if it forced banks to seek more money from volatile capital markets. Deposits provide banks with about 60 per cent of their funding to write loans for mortgages and businesses.

“A higher proportion of bank funding from deposits, rather than capital markets, contributes to lower exposure to volatility through economic cycles, and this sets Australian banks apart globally,” CBA executive Kate Crous said in the bank’s submission.

Allan Gray portfolio manager Suhas Nayak said a focus on deposit pricing was only “one side of the story” and ignored the most important metric for banks – return on equity – which was “not particularly