Report: Big banks protect themselves at everyone else’s expense

AUSTRALIA’S big banks have used their market power to “insulate themselves from competition” and bolster their profitability, the Productivity Commission says.

In a scathing report on competition in the financial services sector, the Federal Government advisory body has outlined a list of potential reforms for the industry.

Banks have been able to boost their earnings by keeping customers in products that don’t suit their best interests, the report says.

“What often is passed off as competition is more accurately described as persistent marketing and brand activity designed to promote a blizzard of barely differentiated products,” it says.

Lawyers who have helped many victims of the misconduct cases examined during the banking royal commission said the government need to implement the reforms.

“Trust is broken in our banks and lenders,” Consumer Action Law Centre senior policy officer Katherine Temple said. “This is a mess of their own making. They can’t be trusted to fix the problem and it is up to government to implement this urgently.”

The Productivity Commission gave its final report to the government on June 29 and was it was released yesterday by Treasurer Scott Morrison.

Mr Morrison encouraged consumers to switch banks, saying that for a typical home loan, “the price of loyalty” was between $ 66 and $ 87 a month.

The report recommends every bank be forced to appoint a “principal integrity officer” who would be compelled to contact regulators if their boards were “not responsive”.

The report also says the “four pillars policy” – where the Big Four banks are barred from merging – is a “redundant convention”.

There is no evidence it helps competition, the Productivity Commission says, and it may have in fact “dissuaded it by embedding a fixed market structure”.

Among other suggested reforms, it says trailing commissions – ongoing payments from banks to, for example, mortgage brokers who refer borrowers – should be banned.

It also called for the government to set up an official comparison website for home loan interest rates.