You might have thought that with all the bad news coming out of David Murray's Financial System Inquiry (FSI) report, that the big four banks would see their share prices hammered today.
It wasn't the case, with all four banks putting on decent gains. Australia and New Zealand Banking Group (ASX: ANZ) rose 0.9% as did Commonwealth Bank of Australia (ASX: CBA) while National Australia Bank Ltd. (ASX: NAB) jumped 1.8% and Westpac Banking Corp (ASX: WBC) rose 1%.
Clearly, the market breathed a sigh of relief that the 44 recommendations from the Inquiry will have less than expected negative effect on the big four.
The FSI could clearly have gone the whole hog, and recommended a range of measures including forcing the banks to hive off their wealth management and funds management arms, thereby segregating the product makers from the product sellers.
Mores the pity really, but that could also have caused wide scale shock to the financial system, something the inquiry would not want to be responsible for.
So the FSI elected for Plan B – force the banks to hold more capital, which the banks should be able to come up with easily enough without having to resort to discounted equity raisings, or slashing dividend payments. And the plan will be implemented over a period of time, giving the big four banks a chance to maintain their dominance of the sector.
Even the report's recommendation to stop self-managed super funds (SMSFs) borrowing to buy investment property, and highlighting the negative effects of negative gearing and capital gains tax laws, had no effect on the banks' share prices.
Still, it's early days, and more light may be shed on the report over the coming weeks.
For one, the report has made a number of recommendations, but none of them have to be adopted, if the Federal government wants to stick its head in the sand like it did with the Henry Tax Review. So it will be interesting to see which way the politicians are leaning.
Another factor will be getting some of the regulators, such as the Australian Prudential Regulation Authority (APRA), onside to implement the changes. And APRA is unlikely to be overjoyed that its happy assessment of Australia's banking system has been called into question.
Big four bank shareholders can breathe a sigh of relief…for now anyway.
