The post-GFC period has been one of significant regulatory change for the banking sector, both internationally and domestically. The period has been marked by volatility, uncertainty and instability with further regulatory change still in the wings. The likely effects of these impending regulatory changes are yet to be fully discerned.
In a recent submission to the Senate Economics Committee, the Australian Centre for Financial Studies highlighted a number of issues relevant to the Committee’s Inquiry into the post-GFC banking sector.
The recommendations that were made in the submission are summarised below.
Recommendation 1: The degree of competition in the financial sector and the extent to which undesirable barriers to entry exist warrant review as part of a major review of the workings of the financial sector. One aspect of that review should include an assessment of the extent to which implicit and explicit government support conveys competitive advantages to particular financial institutions.
Recommendation 2: Consideration should be given to whether the systemic importance of the Big Four Banks (or any other financial institutions) warrants some form of special regulatory treatment.
Recommendation 3: (a) the deposit guarantee cap under the FCS should be reduced; (b) consideration should be given to charging a fee for the deposit guarantee on competitive neutrality grounds.
Recommendation 4: Consideration, on grounds of competitive neutrality, should be given to allowing any fee imposed for the deposit guarantee to be paid in the form of either cash or debits to franking account balances.
Recommendation 5: As part of a suggested review of the Australian financial system and its regulation, a substantive cost-benefit study of the impact of recent and proposed regulatory changes on the economy should be undertaken.
Recommendation 6: The merits of allowing banks (and other lenders) to adopt mortgage loan arrangements giving them complete discretion to adjust interest rates on existing loans should be examined.
Recommendation 7: A wide-ranging review of Australia’s financial system and its regulation is warranted.
Professor Kevin Davis
Research Director, Australian Centre for Financial Studies and
Professor of Finance, University of Melbourne
W: +61 3 9666 1050