Ralph's right-defiant CBA boss Ralph Norris takes swing at populism | The Australian

We aren't here to defend the Majors but we are dedicated to seeking to battle conventional wisdom and thin slicing and the debate on Australian banking is now taking on a hysterical tone which threatens to deliver a negative result for Australia and all Australians.

Earlier in the week we talked about a solution that we don't believe anyone else has floated. That is rather than simply underwriting the smaller ADI's via securitisation via AOFM the Government should "wrap" qualifying smaller institutions to the rating of Major. This is effectively what Westpac did in the 1990's while it was rebilding after its unfortunate foray with property which brought it to its knees and caused a credit downgrade. Ironically if we remember correctly its was an American Bank that provided the "wrap" so Westpac could continue to borrow and transact in professional markets like swaps and foreign exchange.

We'd argue that the tiered nature of the cost of the Australian Governments "deposit guarantee" was in its construction anti-competitive in that it relied on foreign rating agency assesment of Australian ADI strength based on international prejudices about size, systemic importance and geographic diversification rather than capitalisation, funding profile and asset strength. Indeed these last 3 criteria are downwaited in favour of the aforementioned drivers. Thus in using ratings the Government itself reinforced the competitive advantage of the Majors.

As Ralph Norris says in the attached article and we mentioned we were worried about earlier this week foreign investors will or are becoming worried about the politically charged atmosphere surrounding Australian banking now. with a huge maturity profile in 2011 the debate runs the risk of simply driving up funding costs or worse driving away investors.

These costs will have to flow back into the Australian economy to all our net detriment. Surely we can find a solution which builds up the smaller guys rather than drags down the big guys this is a win win. The alternative is a lose lose for Australia and consumers and whatever the thin slicing rhetoric that doesn't help anyone.

Rates-defiant CBA boss Ralph Norris takes swing at populism The Australian