Shadow Treasurer Joe Hockey has called for additional powers for the ACCC to act against collusive price signalling, and a major “son of Wallis” financial regulation inquiry, amongst a suite of measures to deal with the ambitions of Australians banks to aggressively expand in the wake of the Global Financial Crisis.
Hockey laid out his case this morning at an Australian Industry Group conference, expanding on his calls last week for a debate on the future of banking regulation, in terms that are likely to be vigorously disputed by the Big Four.
Hockey described how the impact of the GFC on the non-bank lending sector has meant the major banks had in essence become the Australian financial system. Their “too big to fail” status, at odds with one of the principal recommendations of the Wallis Inquiry that governments not guarantee parts of the financial system for fear of moral hazard, strengthened the case that they now be regulated more like “bullet-proof utilities that are focused on delivering stable returns to shareholders” rather than “growth stocks, like resources or technology companies”.
Hockey’s to-do list would be the most substantial overhaul of financial sector regulation since Wallis and, arguably, since the Campbell report in the early 1980s:
- ACCC to be able to investigate collusive price signalling;
- APRA to be able to investigate the Big Four are taking on unnecessary risks in the name of trying to maximise short-term returns;
- The RBA to regularly report on bank net interest margins, returns on equity, and profitability;
- Consider the call by David Murray to enable Australia Post to use its branch network as a distribution network for smaller banks;
- Task Treasury and the RBA with developing ways to improve the liquidity of the residential and commercial mortgage backed securities markets, with the aim of further strengthening competition from non-bank lenders;
- Simplify the Financial Services Reform Act, to make life easier for business
- APRA to investigate whether the risk-weightings on business loans secured by residential properties is appropriate;
- Resolve the debate about whether the banks should be able to issue “covered bonds”;
- A full review of the financial system.
This speech — which is a great summary of the case for further banking regulation — is a key moment in the debate over financial regulation, which has been brewing since the Six Economists’ paper last year, and before. Hockey has now staked out a position for the Coalition well in advance of the Government, and put real political momentum behind the issue. The onus is now on Wayne Swan to do more than merely point to the second-tier banks and credit unions as a source of competition for the banking cartel.
Labor is unlikely to be well-disposed to taking on banking regulation reform when it already has a smaller reform agenda on superannuation and financial services and is wary of falling into the trap Kevin Rudd fell into of trying to do too much at once. Nevertheless, Hockey’s logic about timing is impeccable — we need to put in place the lessons learnt from the GFC now to ensure we’re able to survive the next financial crisis as well.
For a Government that looks bereft of an ambitious agenda and inept at prosecuting the one it has, it should see Hockey’s activism as an opportunity to put in place substantial reforms for one of the most critical sectors of the economy.
This sounds more like a face saving exercise for Joe Hockey. After last weeks naive statements got him into trouble he is desperate for something sensible to say. Most of the points seems to be a banking version of fuel watch or grocery. “collusive price signalling” and reporting on margins and profitability sounds like a very familiar debate. This all just seems to follow the Howard tactic of never admit you’re wrong just keep reframing your policies with “what he meant to say was” type announcements. I think with issues like Murray-Darling; education funding and climate change the government’s reform agenda is “ambitious” enough. Banking shouldn’t be a priority
Why didn’t Hockey say this last week instead of waffling on about fictious levers and regulating the banks ability to set interest rates. Stopping collusion and increasing competition are the only ways to prevent excessive rate increases but this also requires some activism from the consumer to shift funds/loans to smaller players offering better deals.
This is a good, solid social-democratic reform suite for the financial system and the Labor government should commit them. Three unexpected cheers for Joe Hockey!
Real reforms like this are the sort of things the Labor Right should be doing instead playing backroom political Arbibery and letting the Left & Greens present financial credibility destroying ‘reforms’ like a Financial Transactions Tax which is currently getting steam in anti-economic circles as a cure for world everything.
But interest rates are only adverse to a small minority of the population with mortgages and I have to say if they can’t afford them they should not have them.
It is the gouging of fees that is the problem and that is now before the courts.
Why don’t we re-regulate everything else too? We could become China or North Korea with dear leader at the helm dictating every little thing.
Oops, just heard dear Leader tell Doug Cameron to shut up.
Marilyn – full of compassion for refugee’s can’t give a toss about Australian farmers, business owners or mortgage holders.
Increasing competition might also increase the paltry rates offered on deposits which might help the self funded retirees.