The Senate Economics References Committee has released the report of its inquiry into competition in Australia’s banking sector, warning that the ‘flight to quality’ that occurred as a result of the GFC has caused concentration of the banking market and increased dominants of the ‘big four’ banks which has the potential for undesirable impacts on competition.

 

The report highlighted the need for a longer-term balance between stability and competition, noting that the Government has taken some steps towards this, but recommending a range of further measures that could be implemented to encourage new entrants into the financial services markets, strengthen the role of smaller and international banks and protect the rights and interests of consumers.

 

Overall, however, the Committee believed there is need for a broader inquiry into the Australian financial system, modelled on the 1979 Campbell Committee inquiry. The terms of reference should be broad, covering the role of banks and other financial institutions in a post-GFC financial environment.

 

The Australian Bankers’ Association (ABA) said it welcomed the report’s finding in the report that competition is the best means of protecting consumers’ interests, in preference to further layers of regulation.

 

Steven Münchenberg, Chief Executive of the ABA, said the ABA supports, in principle, initiatives which are aimed at increasing transparency in banking products for consumers.
 
“Details are important, however, and care needs to be taken not to duplicate existing requirements. It is also important that new requirements are practical and workable for banks and their customers,” Mr Münchenberg said.

In relation to the proposed inquiry into the financial system, Mr Münchenberg said it would be premature to conduct one until new international banking regulations, such as Basel III, are implemented and their impact properly understood.

The ABA notes that there is a recommendation for a small business code on lending.

“The current Code of Banking Practice already applies to small businesses and the ABA is always willing to meet with small businesses and their representative organisations to discuss any improvements.”

 

Abacus, the industry body for credit unions, mutual building societies and friendly societies, says the key recommendation of the report is that the financial claims scheme should be retained in its current form.

 

"The financial claims scheme is very important for competition because the scheme makes it very clear to depositors that the smallest banking institution is as safe and secure as a major bank," said Abacus head of public affairs, Mark Degotardi.

 

"The scheme guarantees depositors early access to their funds up to one million dollars. This promotes competition because it secures the funding base for smaller competitors to the major banks.

 

"Maintaining the financial claims scheme in its current form is the number one priority for the mutual banking sector so we are very happy to see this recommendation in the inquiry report.

 

"Another important recommendation is the call for a review of the taxation of deposits. Deposits are the simplest, safest savings vehicle for all Australians but they are the most heavily-taxed savings vehicle. A bigger pool of deposits will mean a more competitive banking market because deposits are the main source of funding for competitors to the major banks,” Mr Degotardi said.



The report, Competition within the Australian banking sector, is available HERE.