Mutuals claim current framework favours big banks and limits consumer choice
The customer-owned banking sector has renewed its call for regulatory reforms to strengthen competition in the financial services market, urging the Albanese government to address long-standing disadvantages faced by smaller institutions.
The Customer Owned Banking Association (COBA) said that a more balanced regulatory approach is essential if Australians are to have genuine choices beyond the major banks. COBA highlighted concerns that current rules disproportionately benefit large, investor-owned institutions, creating barriers for mutual banks and credit unions.
“We need a diverse banking landscape where both investor-owned institutions and customer-owned banks can thrive, so Australians have genuine choice when it comes to their finances,” said COBA chief executive Michael Lawrence (pictured above). “Regulatory settings can either promote a dynamic market or inadvertently stifle competition, so we urge the incoming government to prioritise policies that boost competition in Australian banking, which ultimately is better for consumers.”
COBA is advocating four major policy changes aimed at levelling the playing field. These include a tiered regulatory regime based on risk profile, reforms to capital requirements, addressing funding disadvantages, and streamlining the merger process for smaller institutions.
The association argues that tailoring regulatory settings to reflect the actual risk posed by different institutions would ease compliance pressure on smaller banks without compromising financial stability. It also flagged that under the current rules, customer-owned banks are often required to hold more capital than larger banks for similar loans, limiting their ability to expand lending.
Another concern raised was the funding gap caused by the credit rating advantage major banks enjoy due to their systemic importance. COBA said this creates an uneven cost of capital, making it harder for mutuals to compete.
COBA also pointed to the need for a more efficient merger process, with regulatory complexity consuming limited resources and stifling potential growth.
“These reforms would create a more level playing field for customer-owned banks, allowing them to compete more effectively and continue to provide valuable and diverse services to their members and communities,” Lawrence said.
“Unless government policy prioritises diversity, community needs, and innovation, we risk diminishing a banking sector that caters to the real needs of people, competing only on price margins driven by scale and efficiency.”
The recommendations were submitted as part of COBA’s contribution to the Council of Financial Regulators’ Review into Small and Medium-sized Banks.
The association made its call for reform as it welcomed key ministerial appointments, including Jim Chalmers as treasurer, Daniel Mulino as assistant treasurer and minister for financial services, and Clare O’Neil as minister for housing. “We look forward to working with the government on its new policy agenda,” Lawrence said.
Customer-owned banks currently serve around 20% of Australians and consistently rank as the most trusted in the sector, according to Roy Morgan research. Many mutuals cater to specific professions, communities, or regions, offering tailored services that reflect the diverse needs of their members.
The customer-owned banking model has existed in Australia for nearly 180 years, offering a not-for-profit, member-focused alternative to traditional banks.
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