Through the whole Basel II experience there has been continuing questions raised about the viability of the smaller institutions (in Australia these are mutuals like the Credit Unions / Credit Societies and the Building Societies – not all of them mutually owned) . They will only get minor capital relief, if any, and this was felt to be likely to put them at a disadvantage to the bigger banks.
A couple of points can easily be made against this argument. Not the higher capital part – that is virtually indisputable. The banks using the more advanced methodologies will have lower capital requirements than those institutions going standardised – which, to be blunt, is the way it should be. The amount of likely disadvantage, though, is disputable.
As this media release makes plain customers like the smaller institutions. They consider they get a better deal through them – perhaps not in pricing (though this is disputable) but certainly through customer care. While this continues the customers will stay with them and they may well attract new ones.
The trick for the smaller banks is to weed out the customers that are costing them too much money to service and either get rid of them or charge them more. If they manage that then I see no reason why the smaller institutions should not continue for a long