8 May 2011
One of Australia’s leading bank challengers, Yellow Brick Road, has announced its support for the
Senate Economics Committee’s banking recommendations, specifically in the area of providing
assistance to smaller lenders to encourage competition and cultivate better consumer education in
the financial services industry.
Yellow Brick Road has played a key role in helping the Committee formulate its recommendations,
and believes that breaking‐down the barriers that hamper smaller lenders from effectively
competing with the big banks is crucial to creating a balanced financial system that offers genuine
and competitive choice for all Australians.
“The current industry model makes it very hard for smaller lenders to take‐on the big banks,” said
Yellow Brick Road Executive Chairman Mark Bouris. “The question we need to ask ourselves is why
Australia has not had a genuine new retail banking entrant in over a decade. The answer is clear: the
barriers to entry are high, and the Government must, therefore, devise ways to further foster
competition and facilitate the entry of new participants that can improve the savings and loan
opportunities furnished to consumers,” Bouris said.
Bouris believes that Australia’s banking system is inherently oligopolistic and designed to favour the
big banks. “This is why we have only four institutions that account for about 75‐80 per cent of the
market. The fact is the major banks have tremendous funding‐raising and cost advantages over
everybody else, which is why there has not been a new retail banking entrant since the advent of
ING Direct in 1999,” Bouris said.
He continued, “The Government has powerful reform opportunities available to it. For example,
Yellow Brick Road believes that more policy thinking needs to be invested into ways to help
vouchsafe the liquidity of Australia’s securitisation market. The value of securitisation as an
alternative source of funding is that it enables lenders to secure capital on broadly the same terms,
irrespective of their size. In principle, this means that Yellow Brick Road could raise funding at the
same cost as CBA, so long as the quality of our loans was no worse.”
“The Reserve Bank of Australia has repeatedly highlighted the quality and resilience of Australia’s
residential mortgage‐backed securities (RMBS) market, which has demonstrated consistently low
default rates despite Australia’s high mortgage rates. Yellow Brick Road believes that the
Government can do better than simply throwing $20 billion of taxpayer’s money at the sector via the
Australian Office of Financial Management (AOFM). Specifically, we believe that the Government
should consider a more permanent liquidity facility whereby the AOFM would effectively makemarkets
in RMBS on commercial, arms‐length terms. We also believe that the Government must
urgently address the fact that the RMBS market remains completely unregulated. APRA or ASIC
should properly regulate and licence any financial institution securitising Australian home loans,
which would send a powerful signal to global capital markets that the Government was going to
enforce minimum standards of capitalisation, disclosure and quality,” Bouris said.
Leading financial economist and banking expert, Christopher Joye, also endorsed Yellow Brick Road’s
suggestions for the securitisation market. “I wholeheartedly agree with Mark Bouris’s ideas for
establishing a permanent liquidity facility to assist in stabilising the residential mortgage‐backed
securities market. This is similar to the RBA’s repo facilities for the deposit‐taking sector. The AOFM
is purpose‐built for this role, which would be a dramatic improvement over the current approach
whereby the Government is simply co‐investing taxpayers’ money into new issuances with no real
vision of how to help this market avoid extreme liquidity shocks in the future."
"I also agree with Mr Bouris’s proposal for creating a proper licencing regime for all securitisers,
overseen by APRA or ASIC. One of the signal lessons from the GFC was that self‐regulation does not
work. This would send a strong message to global investors that the Australian Government is
monitoring the integrity of the RMBS market,” Joye said.
In addition to removing barriers to entry, Yellow Brick Road contends that levelling the competitive
playing field will only come about via superior consumer education, which it thinks the Government
should have a role in promoting.
“Every Australian household deserves access to quality financial advice, and that’s why we’ve taken
our business practice and branch network to the streets. It shouldn’t matter if you live in a big city or
a small country town, consumers must be empowered to make the right decisions for their life‐cycle
savings and spending needs. This is why the Government must make additional investments in
financial education, and encourage Australians to seek financial advice by making these services taxdeductible.”
As a recognised thought leader in the deposit‐taking sector, Yellow Brick Road believes that the key
to the implementation of the Committee’s recommendations will be to raise awareness as to why
these reforms are so important to Australians in the first place.
“The goal for creating competition in banking is to help Australians get a better deal, but most
punters don’t even realise that there is a viable choice out there, “ said Bouris. “Smaller lenders,
such as Yellow Brick Road, have some of the best rates in the market, and this is possible because of
the versatility and vibrance of the authorised deposit‐taking sector.”
Mr Bouris continued, “Consumer choice will ultimately be driven by progressive new participants like
Yellow Brick Road, which utilise fee for service models and relentlessly remind the Government on
the need for sensible competitive reforms. But it’s also about establishing credibility and trust. That’s
why an awareness program funded by the Government should be used to build consumer
confidence around the opportunities afforded by mutuals. This will be a vital contribution towards
the success of the Committee’s recommendations.”
Independent Senator for South Australia Nick Xenophon supports Yellow Brick Roads' call for
education and awareness initiatives.
"The more information and transparency there is, the more consumers will be able to search for a
lender who offers them the best banking options. Smaller lenders such as credit unions, mutuals and
second tier lenders offer the same security as the big banks and they have very competitive rates. If
consumers were better informed as to the security of smaller lenders, they’d be more willing to look
around. This by itself would create more competition in the banking sector,” Xenophon said.
Copyright © 2012 Yellow Brick Road
