The big four banks receive excessive support from the federal government, which is stunting the development of alternative funding sources such as bond markets and securitisation, the Australian Centre for Financial Studies says in a new paper.

“Policymakers should be very careful not to continually make more and more policy concessions to Australia’s largest banks, because that unreciprocated support will damage the development of other capital channels," Sam Wylie, from the Melbourne Business School, writes in a paper on financing business – the fourth prepared by the ACFS ahead of the release of David Murray ’s interim report next Tuesday.

Capital is carried from savers to businesses through four channels: bank loans, the equity market, the bond market and securitisation.

The Australian Centre for Financial Studies says current policies favour bank lending over capital markets. Photo: Bloomberg

The ACFS said current policies favoured bank lending over capital markets. And the benefits banks derived from government support – such as deposit insurance, the ability to issue covered bonds, and access to the committed liquidity facility with the Reserve Bank of Australia – outweighed the obligations imposed on them, such as having to holding proscribed levels of capital.

In addition, the explicit and implicit guarantees the banks received during the global financial crisis – including the ban on short selling and wholesale funding guarantee – had reduced the cost of capital for Australia’s big banks. “Support for the banking channel since September 2008 has gone beyond what is needed to maintain system stability, without sufficient matching obligations," the report says.