Dr Dennis Jensen MP

Australian Bank Reform

The Big Four Banks are reaping the rewards of Labor policy that saw not only mum and dad but institutional investors abandon the customer care of smaller lenders for the government guaranteed financial security of the big institutions in response to the Global Financial Crisis.

The Federal government gave the major banks an uncapped guarantee of backing investors and other customers and failed to extract anything in return.

In doing so the Federal Government created an anti-competitive market that allows the banks to make profits hand over fist without earning them in a free market.

Michael Smith, head of ANZ, has become the public face of the Banks and Joe Hockey’s adversary in this debate. Not only has he attacked Mr Hockey’s capability as an alternative Treasurer but also the fundamental economic credentials of the Liberal Opposition.

But Smith’s only responsibility is to ANZ shareholders and investors. He does not need to factor in the welfare of the average Australian into his argument nor his profit line decisions.

The Federal Government and Opposition must take these factors into consideration, which is precisely why Mr Hockey has presented nine salient points that are owed air-time for robust public debate. There is a certain public popularity for bank bashing sound bites. Hearing what is apparently an attack on the ‘fat cats’ that are pushing up living costs attracts listeners to radio shows and viewers to television news programs. But this media focus on the shallow end of the story has overshadowed Mr Hockey’s legitimate questions of the banking sector.

It has been a long time since a politician was criticised for policy conviction, rather than their inability to establish a position and stick to it. Mr Hockey has been unfairly criticised by the Government for his conviction to introduce banking reforms. Apparently we’re damned if we do, damned if we don’t.

We must now outline policy for the banking sector that reduces or eliminates exit fees and transfer charges. The average Australian should have the right to take their business elsewhere to get a better deal, without penalty.

We must also ensure individual institutions are only allowed a certain market share and that we pave the way for the introduction of other players to open up the market.

Driving free market competition is the only long term solution to create better value for the consumer and preclude the development of monopolistic behaviours.

Banks can’t be blamed for taking full advantage of the comfortable economic position they are afforded. Government policy has distorted the market, creating a large buffer between their bottom line and healthy competition.

Only the NAB asked for the financial guarantee in the shadows of the GFC. Commonwealth, ANZ and Westpac were willing to go it alone but accepted the gifts of the Federal Government that saw the demise of the smaller players, the Aussie’s and the RAMS, and a significant reduction in the penetration by international banks, which led to an even greater concentration of power in the hands of the major banks.

However, banks must be confronted on their tendency to move quickly when passing on interest rate rises, frequently above the RBA to the consumer, but slowly when passing on reductions, and often not passing on the full reduction.

The imposition of exit fees, mortgage transfer fees, name change fees and the like that create a major barrier to consumer movement within the banking sector must also be addressed.

Many consumers are in debt beyond their capacity to absorb upward movements in the market. While this is financially unwise it leaves many in an unfair position.
Unable to find room in their weekly budget to afford transfer and exit fees investors have no option but to remain with their current lender.

Why are poor customer service and inflated interest rate movements rewarded by an impost on those seeking a better deal?

There are arguments for these fees, including administrative obligations involved in moving debt between institutions, but the imposition of tens of thousands of dollars as penalty for loss of business is morally unjust.

We must legislate to ensure there is a fair and accountable market place with ample competition to ensure banks work to earn profits and are not in a position to drive interest rates independently of market pressures.

But how can we push for a free market, if this free market is not able to act as it should and place pressure on business to act more competitively?

GFC guarantees mean the Big Four have the luxury of market share and cannot be forced to earn their profits with equitable rate movements and customer service initiatives.

Reform of these GFC guarantees and implementation of policy that limits the share of the retail mortgage market a particular bank can hold will go some way to improving the competitiveness of the banking sector.

The introduction of other players into the market would shake up the industry and force banks to fight for their profits and create an industry more focused on the consumer.

An argument for greater competition is a hard solution to sell to retail mortgage consumers. The average punter wants to see legislation that directly targets interest rates and fees, those figures directly affecting their fortnightly repayments. But the provision of greater competition will make consumer banking more equitable and financially fair in the longer term.

A Government that is able to implement ‘cost of living’ policies and weather the storm until benefits are seen in a decade or so will be held in history as a government of genuine reform.