Proposed banking sector changes could hit SMSFs: SPAA

The Financial System Inquiry’s proposed changes to the banking sector may be cause for concern for some SMSF trustees, according to the SMSF Professionals’ Association of Australia (SPAA).

In a communication to members, SPAA explained the FSI has recommended that Australia's banks raise their capital levels to better withstand financial shocks and protect taxpayers from “costly” financial sector bailouts.

The FSI also recommended that the risk-weighting used by banks in calculating their capital ratios be adjusted to promote competitive neutrality between the large banks and their smaller competitors, SPAA stated.

“With the majority of SMSFs investing substantially in Australian equities, with many having a strong weighting to Australia's large banks, SMSF trustees may be concerned by the effect that Murray's recommendations may have on bank share prices and dividends,” SPAA stated.

“Australia's large banks have previously cited that increased capital holdings will hit their shareholders and increase borrowing costs for customers. However, SMSFs with a more diversified portfolio of banking stocks may see increased competiveness for smaller banks as a positive allowing these banks to achieve higher profits.”

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