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Wednesday, 12 October 2011
Page: 11570


Mr RIPOLL (Oxley) (11:25): What an extraordinarily long contribution for such a simple set of proposals and changes as are in the Banking Amendment (Covered Bonds) Bill 2011. Anyone listening would have understood that it was more of a history lesson and the shadow Treasurer acknowledged that it was a history lesson but with an interesting twist. It left out 12 significant years of the Howard government. It is as if, in financial services and banking and financial reform, the world only began in 2007 when Labor was elected—that was when all the work had to be done. The coalition says: 'Why hasn't the government done this? Why hasn't the government listened to me?' They blame ASIC, they blame APRA, they blame the ACCC, they blame all the states but there is this convenient gap, a 12-year gap, in the history of the shadow Treasurer's nine-point plan. Where was the nine-point plan for more than a decade? Was it just sitting in the bottom of his drawer? Was it conveniently not accepted by his own party? Where was it for all those years?

Thank you very much to the shadow minister for coming in here and entertaining people with a great history lesson. As he leaves the chamber I thank him very much, but he spent very little time addressing the key points of what is really good about this bill. It is nice to have the coalition's support on at least something acknowledging the good work that the Treasurer and this government have done in making some necessary changes as they are needed in this country to deal with a set of circumstances that we have found ourselves in, particularly after the global financial crisis.

This bill amends the Banking Act and allows Australian banks, credit unions and building societies to issue covered bonds. Covered bonds are a debt mechanism, they are a debt security backed by cash flows from either mortgages or public sector loans. They are quite a safe mechanism and something that is well supported. Treasury estimates that this will allow Australian institutions to issue something in the order of $130 billion of covered bonds in coming years. That will strengthen and diversify the Australian financial systems' access to cheaper, more stable and longer term funding not only in our domestic but also in our offshore wholesale capital markets. This is really significant and it is really important because covered bonds are well established already overseas and they are well understood. They are one of the most resilient funding markets and that was very evident during the global financial crisis. What is really welcome here though is that during the financial crisis it was foreign banks as well as a range of other things that actually helped to underpin our financial system. They did it through covered bonds and that same opportunity should be available to Australian banks. They should also be allowed to issue covered bonds in similar conditions, particularly to our local superannuation funds.

Covered bonds will also assist our banks in meeting our Basel III liquidity reforms and are an important step forward in the continuing reform, the continuing development and the continuing support that this government has provided the banking system. In turn what that actually means is support for consumers, for the clients of banks.

This bill also contains an express framework to allow smaller lenders to pull together and jointly issue covered bonds. It is about providing an understanding that flexibility is needed in this market, that it is not just about the big four, that there are groups of smaller banks, smaller lenders, approved deposit-taking institutions that can actually work together to provide those same facilities.

We want to make sure that the consumers are protected. This was not just a case of coming out and saying that we are going to allow this mechanism. Even though it is well understood, even though it is a safe mechanism and it is covered by cash flows, we want to make sure that consumers and depositors are protected. This bill includes a regulatory cap on the amount of covered bonds an institution can issue. There needs to be that safety mechanism in place. The cap will be set at no greater than eight per cent of an institution's assets in Australia. Additionally, depositors will continue to have certainty over their deposits under the financial claims scheme.

When this government announced the financial claims scheme we made sure that people would have certainty and safety about their deposits. I think it is pretty safe to say that all Australians when it comes to a bank have an image in their minds that, when they have put their money in, at any time that they want they can go to the bank and take their money back out. That money is there, it is held safely and it is accessible. As a government, we want to make sure that actually is the case—that it is backed.

The government has recently announced that the financial claims scheme will have a $250,000 per person per institution protection mechanism from 1 February next year—2012. This will protect the savings of about 99 per cent of Australians' deposits in full. In the unlikely event though that you actually needed to use this particular facility, and in the even more unlikely one of the sale of a failed authorised deposit-taking institution where their assets could not cover depositors' funds in full, then the financial claim system will allow the government to levy the banking industry and to recover the outstanding amounts. The bottom line for depositors is that your money is safe; that is an important understanding to have.

This bill is another essential reform in the Australian banking industry. It continues the government's commitment to greater competitiveness and a sustainable banking industry for all Australians. The government, for example, has banned mortgage exit fees quite simply because they were just bad. They were bad for customers and they were bad for consumers, particularly consumers that wanted to switch loans to cheaper loans. Mortgage exit fees, for the majority of people, actually prevented them doing that. We have banned those; we want to make sure that there is true, fair and open competition in the banking system.

The legislation introduced will also help customers. We have introduced legislation to make sure that customers can actually compare loans. I think one of the biggest issues for many people is that when you try to compare apples and oranges and bananas at banks it is all just a little bit too difficult to actually see where the value proposition is. What sort of value am I getting for the interest rate that I am being charged? We have introduced the provision of a simple one-page fact sheet for consumers to help them to compare loans. You actually can compare down a sheet and say, 'Okay, the rates might be slightly different but there is an advantage, maybe, with paying a little bit more interest rate than there is with going with the slightly cheaper loan'. We have made sure that consumers can understand that in its simplest form.

We have also instituted reforms to protect credit card consumers and to save them money. This is in the way you pay your credit card and where those payments first go. They should go to your highest interest rate periods and debt first, rather than coming off the cheaper end of the credit card. These are all little changes, but really important changes for ordinary consumers trying to save some money and to get better value.

We are making it easier to switch deposit accounts. We are also building a fifth pillar in the banking system from the combined competitive power of our mutual sector organisations. We have also boosted the government's investment in AAA-rated RMBS by $4 billion, which is helping smaller lenders to secure cheaper funding. That transfers; it means that more money is available in the system for when people want to borrow money to buy a house. One of the biggest problems we are facing today is when people genuinely can afford a loan but cannot quite meet the requirements because liquidity is tight—because cash is tight. By providing these extra funds through the RMBS—an extra $4 billion—that money will be available to young families trying to buy their first home.

The government's reforms in this area are having an enormous impact, and we are having that enormous impact in four years not 12. Particularly following the global financial crisis, where tough decisions had to be made, we needed a government that would actually take action; not just talk the talk but walk some of it as well. Banks are now more competitive than ever, and this means there is more choice in products as well as more choice in banks. This can only be good for consumers because they can choose with their feet. You can walk, you can go from one bank to the next. Your loyalty ought to be based on their loyalty to you, not the other way round.

This bill continues the government's reforms, and will ensure that our financial institutions will have the capacity to lend safely for many years to come. I commend the bill to the house.