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Small banks plead for flat fee

Australia’s smaller banks have warned the government that if it implements the planned insurance levy on bank deposits, the fee must be charged at a flat rate and not vary based on the size or credit rating of the institution.

The government’s intention is to begin charging an insurance levy of 0.05% on bank deposits worth up to $250,000 in order to protect depositors in case one of the big banking institutions fail – a strategy that is expected to raise around $700 million over the first 18 months.

In 2008, when extraordinary measures were introduced by the government to support the banks in light of the global financial crisis, the bigger banks were charged a lower fee due to their higher credit rating and less risk for the taxpayers providing support. Meanwhile, the smaller banks were charged at a higher rate because they had lower credit ratings.

The smaller banks have argued that, should the government impose a variable fee instead of a flat fee, the competitive advantage of bigger banks including Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA) would only grow, which would prove detrimental to smaller banks such as Bank of Queensland (ASX: BOQ).

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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