The Federal Government announced its banking reform package yesterday, entitled a “Competitive and Sustainable Banking System” but most analysts agree it won’t have the desired effect of reducing mortgage costs and increasing competition.
The package consists of three parts:
• a variety of measures aimed at providing a “better deal for consumers‟, including banning exit fees on new loans from July 1, 2011;
• support to small lenders which seeks to enhance the combined competitiveness of credit unions and building societies as a “fifth pillar” in Australia’s banking system;
• measures to ensure the sustainability of Australia’s financial system including allowing banks, credit unions, and building societies to issue covered bonds to broaden access to cheaper funding.
I agree that creating a more competitive environment for Australia’s banking sector is required. Since the Global Financial Crisis, we have been left with 4 big players monopolizing the banking sector.
But the proposed changes by the Treasurer, Wayne Swan, aimed at creating a fifth banking pillar by turbo charging credit unions are long on rhetoric and short on solutions. The package announced yesterday won’t help bank customers suddenly get lower interest rates. Nor will it substantially increase competition, reduce the dominance of the major banks or make it much easier to switch between banks.
A cynic would say it is aimed more at persuading mortgage holders in marginal seats that the government feels their pain and shares their anger at the big banks, especially when interest rates go up.
The Herald Sun’s Terry McCrann gave the Swan package a thumbs down saying: ” He has managed a rare double: a package that is both pointless and potentially damaging and harmful. It is also a formal statement that this Government has embarked on populist feel-good measures that will unwind the tough Hawke-Keating Labor government reforms that delivered 20 years of growth and prosperity. Sure, there are some good things in the package. The “lettuce” so to speak. Correction, one: the simplified, understandable facts sheet. The rest are deceptive, dangerous and plain silly.”
Banking analysts said the fillip to competition for smaller banks and credit unions from the changes would be negligible. The chief executive of Bank of Queensland, David Liddy, said the proposed changes offered little for the regional banking sector, given they did not go to the heart of the problem – the cost of funds for smaller banks.
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