Previously restricted documents released this week by the Reserve Bank confirm that Australia’s major banks are deriving a $3.7 billion annual benefit from the federal government’s ‘implicit guarantee’ over their operations.

The disclosures by the RBA vindicate arguments put up by regional banks such as Bendigo and Adelaide Bank and ME Bank in recent years that the guarantee induces an uneven playing field in the Australian banking market.

The research vindicates public perceptions that the major banks – NAB, Commonwealth, ANZ and Westpac – receive an indirect, albeit lucrative, subsidy from Australian taxpayers.

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The research documents were published by the Reserve Bank on Wednesday after a freedom of information request from The Australian newspaper.

While the regional banks told David Murray’s financial system inquiry in 2014 that the implicit government guarantee could be worth as much as $7.9 billion a year to the big four banks, RBA analysts found it was worth up to $3.74 billion in 2013.

The Reserve Bank found that the major banks’ cost of borrowing money in wholesale money markets would be significantly higher if international lenders did not think the government would bail them out in a financial crisis.

The RBA estimates that each of the major banks’ credit ratings would fall two notches without the government backing.

Australia’s big four are among a select group of international banks to hold ‘AA-‘ credit ratings with Standard & Poor’s.

Without the implicit guarantee, their credit ratings would fall into line with the single ‘A’ ratings of the country’s smaller banks.

The RBA says banks’ credit ratings mean that ‘the government would support them if they got into trouble’.

The comparatively high ratings of the big banks mean they can each borrow funds much more cheaply than ‘A’ rated banks such as Bendigo, Suncorp-Metway and Bank of Queensland, who the RBA says derive little benefit from any implicit government guarantee.

Big banks benefit more in financial crises

The RBA found that value of the taxpayer-generated subsidy to the major banks varied according to the state of global financial markets.

Generally speaking, bigger benefits flow to the big banks during unstable financial conditions because jittery international lenders feel more comfortable lending to banks that are perceived to be government-backed.

Since 2009, Bendigo and Adelaide Bank managing director Mike Hirst has mounted a concerted campaign to raise awareness of how international perceptions of the government guarantee work against competition in the Australian banking market.

“There is no doubt it contributes to an uneven playing field,” he said.

“I’m still concerned about the subsidy but I’m pragmatic enough to know that there might be little that can be done about it.”

The RBA noted that higher credit ratings and cheaper funding costs of the big banks theoretically mean that they can deliver more attractive lending rates to borrowers.

However, there is little evidence to show that the major banks have passed on savings to customers.

In the home loan and retail deposit markets, research published by financial product research houses such as Mozo, show the big four banks are rarely price leaders with their product offerings.

Most of the benefits flowing from the cheaper funding costs have helped the banks to fatten dividends paid to shareholders.