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WELLBEING, RESILIENCE and PROSPERITY for AUSTRALIA FINANCIAL SYSTEM INQUIRY March 2014

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WELLBEING, RESILIENCE and PROSPERITY for AUSTRALIA FINANCIAL SYSTEM INQUIRY March 2014 WELLBEING, RESILIENCE AND PROSPERITY FOR AUSTRALIA FINANCIAL SYSTEM INQUIRY March 2014 CBA0416 FSI Doc_Final.indd 1 31/03/14 5:46 PM COMMONWEALTH BANK’S SUBMISSION IS FOCUSED ON IMPROVING THE LONG-TERM WELLBEING OF AUSTRALIANS, CONSISTENT WITH OUR VISION TO SECURE AND ENHANCE THE FINANCIAL WELLBEING OF PEOPLE, BUSINESSES AND COMMUNITIES. COMMBANK CAN. CBA0416 FSI Doc_Final.indd 2 31/03/14 5:46 PM TABLE OF CONTENTS EXECUTIVE SUMMARY 6 SECTION IV: SAFEGUARDING SECTION I: AUSTRALIA’S RETIREMENT BUILDING ON SOLID WITH A SUSTAINABLE FINANCIAL SYSTEM SUPERANNUATION FOUNDATIONS 9 SYSTEM 72 CHAPTER 1: HOW THE FINANCIAL CHAPTER 10: IMPROVE THE EFFICIENCY SYSTEM HAS SUPPORTED OF THE SUPERANNUATION SYSTEM 72 ECONOMIC STABILITY 9 CHAPTER 11: FUND AUSTRALIA’S CHAPTER 2: A FREE MARKET RETIREMENT 79 PHILOSOPHY FOR AUSTRALIA’S FINANCIAL SYSTEM 24 SECTION V: CHAPTER 3: POSITIONING AUSTRALIA ENHANCING REGULATORY FOR A PROSPEROUS FUTURE 27 EFFICIENCY 87 SECTION II: CHAPTER 12: IMPROVE EFFICIENCY SUPPORTING A STRONG AND ADAPTABILITY OF THE REGULATORY SYSTEM 87 BANKING SYSTEM 33 CHAPTER 4: ENSURE SUSTAINABLE SECTION VI: FUNDING FOR AUSTRALIAN BANKS 34 ADDRESSING OTHER CHAPTER 5: ENABLE COMPARABILITY IMPORTANT ISSUES FOR OF AUSTRALIAN BANK CAPITAL CUSTOMERS 96 RATIOS TO INTERNATIONAL PEERS 42 CHAPTER 6: EMBED A SUPPORTIVE CHAPTER 13: IMPROVE FINANCIAL OPERATING FRAMEWORK FOR LITERACY 96 AUSTRALIAN BANKS 47 CHAPTER 14: FUND INFRASTRUCTURE CHAPTER 7: ENSURE AN APPROPRIATE DEVELOPMENT 102 FRAMEWORK FOR THE SHADOW CHAPTER 15: IMPROVE ACCESS BANKING SECTOR 52 TO CREDIT FOR SMEs 106 CHAPTER 16: ADDRESS SECTION III: UNDERINSURANCE AND SUSTAINABILITY PROTECTING ISSUES IN INSURANCE 111 AUSTRALIANS IN THE GLOSSARY 117 DIGITAL ECONOMY 55 CHAPTER 8: ADJUST SETTINGS TABLE OF FIGURES 119 FOR TECHNOLOGICAL CHANGE 55 CHAPTER 9: ENSURE STABILITY OF APPENDIX 120 THE PAYMENTS SYSTEM 63 CBA0416 FSI Doc_Final.indd 3 31/03/14 5:46 PM COMMBANK HAS IDENTIFIED CONSIDERABLE POTENTIAL FOR THE STATE TO REALISE OVER $750M IN EFFICIENCYCOMMONWEALTH AND BANK BELIEVES THAT COSTTHE SAVINGS TWO HIGHEST OVERPRIORITIES THE NEXT FOR THE FIVEEVOLUTION YEARS. OF THE FINANCIAL SYSTEM COMMBANKARE CUSTOMER CAN. WELLBEING AND SYSTEM RESILIENCE. COMMBANK CAN. CBA0416 FSI Doc_Final.indd 4 31/03/14 5:46 PM TABLE OF CONTENTS EXECUTIVE SUMMARY SECTION IV: & RECOMMENDATIONS X PROTECTING AUSTRALIANS IN THE DIGITAL ECONOMY X SECTION I: Chapter 10: Adjust Settings for CURRENT STATE OF Technological Change X THE FINANCIAL SYSTEM X Chapter 11: Ensure Payment Systems Security X Chapter 1: Economic Importance of the Financial System X SECTION V: Chapter 2: Philosophy and Principles Underpinning The Australia’s Financial REGULATORY NEUTRALITY System X & EFFICIENCY X Chapter 3: Considering Australia’s Future X Chapter 12: Improve Efficiency and Adaptability of the Regulatory System X SECTION II: SUPPORTING A STRONG SECTION VI: ADDRESSING BANKING SYSTEM X OTHER IMPORTANT ISSUES FOR CUSTOMERS X Chapter 4: Comparability of Australian Bank Capital Ratios to International Peers X Chapter 13: Invest in Financial Literacy X Chapter 5: Sustainable Funding for Chapter 14: Fund Infrastructure Australian Banks X Development X Chapter 6: A Supportive Operating Chapter 15: Improve Access to Credit for Framework for Australian Banks X SMES X Chapter 7: An Appropriate Framework Chapter 16: Address Underinsurance and for the Shadow Banking Sector X Sustainability Issues In Insurance X SECTION III: TABLE OF FIGURES X SUSTAINABLE SUPERANNUATION SYSTEM TO FUND AUSTRALIA’S RETIREMENT X Chapter 8: Improve The Efficiency of the Superannuation System X Chapter 9: Fund Australia’s Retirement X CBA0416 FSI Doc_Final.indd 5 31/03/14 5:46 PM 6 Commonwealth Bank of Australia Financial System Inquiry EXECUTIVE SUMMARY An efficient, stable, adaptable and dynamic We encourage the Inquiry to financial system is essential to enhance the preserve what has proven to be of wellbeing of Australians and support the most value to the economy, customers growth of the economy. The Wallis Inquiry and the community and to prepare reported 17 years ago and much has changed for future change. in the economy since then, presenting opportunities and challenges for the financial Commonwealth Bank has identified system. The Financial System Inquiry will what it believes are the three highest consider how to respond to these changes priority financial system objectives and position Australia for a prosperous future. for the Inquiry’s focus: The Commonwealth Bank of Australia Group • Support a strong banking system (Commonwealth Bank) has a significant interest to fund the future growth of the nation. in contributing to a successful financial system and recognises the broad impacts it has • Harness the potential of the digital throughout the economy. Commonwealth Bank economy while protecting is Australia’s largest financial institution, serving customers’ information. over 14 million customers. We play an important role in the community as an employer of 51,000 • Ensure security in retirement people and as a core investment holding for for Australians with a sustainable 800,000 shareholders directly and millions more superannuation system. through superannuation funds. Commonwealth These objectives will build on the stability of Bank has a track record of being a financial system the financial system since the Wallis Inquiry. leader in technology innovation and security. The system has been a pillar of support for We have been investing over $1 billion annually Australia’s uninterrupted economic growth, in improving our services, security and adapting well as circumstances required. convenience to customers. Customers are increasingly satisfied and have Commonwealth Bank welcomes the opportunity a growing pool of superannuation savings. to work with the Inquiry to develop constructive The market is competitive and innovative, ideas and tangible outcomes to address the as illustrated by the broad choices available to financial system’s opportunities and challenges. customers and the high rate of investment made for the future. Australia has emerged from the Global Financial Crisis (GFC) in an internationally competitive position. CBA0416 FSI Doc_Final.indd 6 31/03/14 5:46 PM Commonwealth Bank of Australia Financial System Inquiry 7 The strength of a financial system is only properly Commonwealth Bank’s primary recommendations demonstrated at the weakest point in the relate to achieving these objectives: economic cycle. Australia’s system remained • Increase the depth and liquidity of domestic resilient during the GFC but it was appropriate debt markets. to improve regulatory standards in its wake in order to provide additional strength and stability. • Apply consistent, unambiguous regulatory standards to rapidly developing digital Commonwealth Bank largely supports the changes financial services to protect customers and made and in this submission proposes some system stability. enhancements to further improve system efficiency and customer wellbeing. The requirements for • Clarify superannuation regulatory boundaries participating in the system and maintaining the to improve efficiency and support the ability of savers to prepare for a self-funded retirement. trust of customers must remain high. In addition, Commonwealth Bank makes further Commonwealth Bank’s submission is focused recommendations on a range of other topics that on improving the long-term wellbeing of Australians, will influence Australia’s future. We identify some consistent with our vision to secure and enhance topics for additional discussion during the Inquiry: the financial wellbeing of people, businesses and communities. • Improve the efficiency and adaptability of the regulatory system. The future for customers will be shaped by the role that technology plays in their • Assist Australians to make informed financial lives, the opportunity offered for an decisions by increasing the level of financial literacy. ageing population by a growing pool of retirement savings, and the influence • Review financing options for important segments of offshore forces. of the economy, in particular small businesses and infrastructure projects. The financial system will play a critical role in this future. The Inquiry should consider how to enhance • Address issues related to the understanding and protect customer wellbeing through all points and affordability of insurance. in the economic cycle and how to ensure that the This submission is an opportunity to present system remains resilient, particularly during Commonwealth Bank’s views on a range of topics periods of weakness. that will require ongoing discussions during the Inquiry. Commonwealth Bank is eager to play a leading role in discussions in order to position Australians for a prosperous future. CBA0416 FSI Doc_Final.indd 7 31/03/14 5:46 PM THE FINANCIAL SYSTEM HAS BEEN A KEY PILLAR OF THE STRONG PERFORMANCE OF THE AUSTRALIAN ECONOMY. COMMBANK CAN. CBA0416 FSI Doc_Final.indd 8 31/03/14 5:46 PM CHAPTER 1 Commonwealth Bank of Australia Financial System Inquiry 9 SECTION I: BUILDING ON SOLID FINANCIAL SYSTEM FOUNDATIONS CHAPTER 1: HOW THE FINANCIAL SYSTEM HAS SUPPORTED ECONOMIC STABILITY SUMMARY • The financial system has been a key pillar of the strong performance of the Australian economy since the Wallis Inquiry, including during the GFC. The financial system is one of the strongest globally and has continually adapted to support Australia’s economic growth. • A strong financial system shares financial and non-financial benefits
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