Expect to see the phrase "competitive neutrality" figure strongly in the next phase of debates over banking regulation. This concept, accompanied by calls to level the playing field, was a feature of the joint submission lodged with the Productivity Commission by AMP Bank, Bank of Queensland, Bendigo and Adelaide Bank, ME Bank and Suncorp.These five banks highlighted five areas that need policy reform to achieve sustainable competition and competitive neutrality:1.    Further policy reform to reduce the artificial funding cost advantages enjoyed by the major banks. "While the new major bank levy has reduced this advantage, it only recoups a small proportion of the overall credit rating uplift enjoyed by the majors," the banks argued.2.    Further reform of risk weights to address the large gap that still exists between the capital requirements of the major banks, which qualify for the advanced internal ratings-based approach and banks adopting the standardised model for risk weighting. 3.    A review of macro-prudential rules to better balance outcomes such as stability, without undermining banking competition. "One option would be for APRA to give greater policy weight to minimum capital requirements," the regionals suggested. They are concerned that APRA's macro-prudential rules have effectively 'locked-in' market share of loan books at current levels, thus leaving smaller banks with no room to challenge the already dominant position of major banks.4.    Mortgage aggregators and brokers owned by major banks should publicly report on the proportion of loans they direct to their owners. "While we do not suggest that major banks should be banned from owning broker networks, we do believe that where this occurs it should be managed in an open and transparent way to ensure customers are able to make fully informed decisions."5.    Before any new regulations are introduced, greater consideration should be given to the impacts on smaller banks. The unprecedented pace and volume of new regulation and compliance has a disproportionate impact on smaller banks which stifles sustainable competition. The banks' chief executives also had plenty to say. ME's CEO Jamie McPhee told Banking Day that while Australia had been well served by a strong and highly regulated banking sector, it was important that stability did not overshadow competition and good consumer outcomes. "The view of the regional banks has been consistent since the financial services inquiry which has been all about providing competitive neutrality - this enables banks to compete fairly and drives competition. Competition provides customer choice. Competition drives efficiency. And that's the basis of our submission."Nevertheless, McPhee asserted that the rules continue to favour the larger end of the banking sector - notably the advanced internal ratings-based approach, a treatment that seems to generate lower levels of capital requirements for all banks that have been able to qualify than under the standardised approach."The differential between the IRB and the standardised model is too great for essentially the same asset with similar underwriting standards all regulated by the same regulator.  However, IRB accreditation should always be set at a level that encourages organisations to continue