Aus­tralia un­veils sweep­ing bank­ing re­forms

The Pak Banker - - Company& -

SYD­NEY: Aus­tralia un­veiled tough changes to fi­nance laws on Sun­day, ban­ning un­pop­u­lar mort­gage fees and crack­ing down on price col­lu­sion be­tween ma­jor banks in a bid to boost com­pe­ti­tion in the sec­tor.

Trea­surer Wayne Swan said the re­forms aimed to em­power con­sumers, bol­ster smaller len­ders and se­cure credit flows to both con­sumers and busi­ness, pledg­ing a "fair go in the bank­ing sys­tem".

Tar­get­ing Aus­tralia's "big four" banks, the re­forms ban exit fees on new home loans and al­low the com­pe­ti­tion reg­u­la­tor to pros­e­cute len­ders for col­lud­ing on rates, af­ter large hikes sparked an an­gry con­sumer back­lash.

An ad­di­tional four bil­lion dol­lars would also be in­jected into the mort­gage-backed se­cu­ri­ties mar­ket un­der the re­forms, Swan said.

"Build(ing) up com­pe­ti­tion in our bank­ing sys­tem will en­sure that in­ter­est rates are lower over time," Swan told re­porters. "It's very im­por­tant that we don't let the big banks off the hook."

Credit unions and build­ing so­ci­eties would for the first time be able to is­sue cov­ered bonds-triple-A-rated debt in­stru­ments backed by mort­gages or pub­lic sec­tor loans-as a "way of less­en­ing our re­liance on over­seas mar­kets" for liq­uid­ity, added the trea­surer.

A govern­ment guar­an­tee on de­posits in­tro­duced dur­ing the global fi­nan­cial cri­sis would also be made per­ma­nent and ex­tended to smaller len­ders. The long-awaited re­forms fol­low sim­mer­ing dis­con­tent over Aus­tralia's com­par­a­tively steep in­ter­est rates, which are now higher than 7.50 per­cent due to hikes by com­mer­cial len­ders above the 4.75 per­cent of­fi­cial cash rate.

Hold­ing the bench­mark rate steady this month, the Re­serve Bank of Aus­tralia (RBA) noted that "lend­ing rates in the econ­omy are now a lit­tle above av­er­age" due to the com­mer­cial banks rais­ing the cost of bor­row­ing above the RBA rate. Swan has slammed the "big four"-ANZ, West­pac, Na­tional Aus­tralia Bank and the Com­mon­wealth-for mov­ing above and be­yond the RBA de­spite record­ing bumper prof­its, ac­cus­ing them of ar­ro­gance and a "cyn­i­cal cash grab".

Aus­tralia's banks were cred­ited with help­ing the coun­try stave off re­ces­sion dur­ing the global fi­nan­cial cri­sis af­ter they es­chewed risky lend­ing and in­vest­ment prac­tices seen in the United States and Europe.

But a se­ries of seven rate hikes since Oc­to­ber 2009 has hit home-own­ers, while thou­sands of cus­tomers are ex­pected to join a po­ten­tial multi-bil­lion dol­lar class ac­tion suit against a swathe of un­pop­u­lar mi­nor bank­ing fees.

Swan said the global fi­nan­cial cri­sis had sig­nif­i­cantly eroded com­pe­ti­tion in Aus­tralia's 2.5-tril­lion-dol­lar fi­nance sec­tor by sink­ing smaller len­ders, leav­ing "com­pet­i­tive road­blocks" that gave the ma­jor banks too much power.

"There's no sil­ver bul­let when it comes to build­ing up com­pe­ti­tion in the bank­ing sec­tor, but to­day I'm an­nounc­ing a raft of changes which will fur­ther strengthen com­pe­ti­tion in this vi­tal sec­tor for the Aus­tralian econ­omy," he said.

Sev­eral pieces of leg­is­la­tion have to pass Aus­tralia's finely-bal­anced par­lia­ment in or­der for the re­forms to go ahead, with the rul­ing La­bor party hold­ing a ma­jor­ity of just one. -PB News

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