Australia's largest home mortgage lender warned on Wednesday that a proposed change to Australia's system of prudential regulation could lead to huge collapses like those seen in the U.S. savings and loan system.
Commonwealth Bank of Australia Managing Director David Murray said proposals by a government-sponsored inquiry into the financial system to regulate banks, pension funds, insurers and other non-banks within the same prudential system was too risky.
Murray told an audience of bankers and economists the proposal would create a system similar to that which regulated the U.S. savings and loan sector before widespread collapses in the 1980s.
"These proposals do take us into uncharted waters which set up for Australia a savings and loans system that cost the citizens of the United States an awful lot of money," he said.
Murray's criticism of the plan to open up the banking payments system to greater competition and strip the Reserve Bank of Australia of its prudential supervision role is the first major attack on the official Wallis' report on the financial system since its release last week.
The conservative Liberal/National government, which set up the Wallis Inquiry soon after its election last year, is currently considering Wallis' recommendations and is expected to make its recommendations later this year.
Murray's broadside was immediately attacked by one of his audience at a Committee for Economic Development (CEDA) luncheon as emotive scare-mongering.
Replying to a question from the floor, Murray said he would not back away from his comments, adding a bank or fund failure was too was too dangerous to risk changing the current system.
He said the time was right to debate Wallis' plan and others should not shy away from being critical.
At the moment, the Reserve Bank requires banks and others with banking licences to meet strict prudential requirements on capital reserves and stops non-banks from issuing cheques or allowing them access to the overnight payments system.
The inquiry, headed by businessman Stan Wallis, recommended that non-banks such as pension funds, building societies and even telecommunications groups be allowed access to the payments system and be covered by a single new body called the Australian Prudential Regulation Commission.
"I would prefer that the Reserve Bank remain the prudential supervisor," Murray said.
Later, Murray rejected the claim that he was scaremongering.
"More Australians have chosen to bank with us than any other financial institution. We're probably better aware of what is scaremongering and what is proper community debate than anybody else," he told reporters after his luncheon address.
Commonwealth Bank which was government-owned until last year, has the largest number of retail savings and other accounts of all of Australia's banks.
"It's a matter of fact that the S&amp;L system in America cost their community A$110 billion (US$86 billion)," he said.
"Why should I therefore condone a supervisory system that appears to be built that way," he said.
"(Wallis) has deliberately overlaid a number of deposit-taking institutions into one supervisory system. That's what the American system did and they got the S&amp;L problem.
"I see that potential here and I hope that it doesn't happen," he said.
