The Customer Owned Banking Association has called for an overhaul of the prudential regulator's charter to stoke competition in the Australian financial services sector.In a rigorously argued submission to the Productivity Commission's inquiry into competition in retail financial services, COBA maintains that the Australian Prudential Regulation Authority still attaches "inadequate and inconsistent" weight to competition issues in its approach to regulating the banking industry."There is evidence that Australia's financial regulators are not immune from the view that accretion of market power can be desirable from the standpoint of preserving stability in the financial system," COBA states in its submission."APRA's consideration of the impact on competition of its approach to regulation has improved since the Financial System Inquiry but in COBA's view has been inadequate and inconsistent.""Major banks benefit from a regulatory framework that has helped to embed their dominant position in the market."COBA wants APRA's role rebalanced to take greater account of the impact its decisions have on competition.That could be achieved by overhauling the regulator's statutory mandate to include an explicit 'secondary competition objective'."The regulatory framework over time has entrenched the dominant position of the largest banks," said COBA's policy director, Luke Lawler."The secondary competition objective would formalise the relative prioritisation of competition and ensure that it becomes ingrained into APRA's day-to-day regulatory processes."Lawler observed that market concentration was destabilising the financial system because it was contributing to inappropriate conduct by firms and reducing consumer access to financial services.The COBA submission also highlighted a string of prudential measures that were imposing additional costs on small institutions trying to compete against the four major banks.These included the retention of higher capital risk weights for mortgages sold by small lenders compared to the major banks and the prohibition on credit unions using the term 'banking' in their business and trading names.COBA is also troubled by APRA's lack of urgency in addressing the funding cost advantage enjoyed by the major banks stemming from ratings agencies' perceptions of an implicit government guarantee."The distorting impact on competition of the implicit guarantee is getting worse," COBA states in the submission."An immediate option available to reduce the distorting impact of the implicit guarantee is to increase the capital surcharge it applies to the four major banks."In its submission to the inquiry APRA defends its regulatory approach by citing several examples of where it balanced its primary mandate of maintaining financial stability against competition concerns.These included the decision in July 2015 to increase the capital risk weights that apply to mortgages sold by the major banks.The effect of this measure was to narrow the gap in the amount of regulatory capital that big banks and other lenders have to put aside on home lending.Despite this change, the big banks incur capital charges that are about 45 per cent lower than credit unions and building societies.APRA also argues that the surge in the collective market share of the majors during the global financial crisis was mostly attributable to the acquisitions of St George and Bankwest by Westpac and