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Thursday, 24 March 2011
Page: 3133


Mr SWAN (Treasurer) (9:34 AM) —I move:

That this bill be now read a second time.

The Gillard government has been working since day one to build up competition in the banking system and to get a better deal for consumers.

In December, I announced a comprehensive package of new reforms to empower families, support smaller lenders and secure the flow of credit to our economy.

These build on the decisive actions we took during the global financial crisis to preserve the competitive foundations of our banking system.

Our bank guarantees supported deposit funding for smaller lenders and enabled non-major banks to raise $65 billion in wholesale funding.

Our $20 billion investment in AAA rated RMBS continues to support this critical funding market which many smaller lenders rely heavily on.

All of this means loans are there when families need to buy a home and credit is available when a small business wants to grow.

Competition means getting these loans at a fair price—and that is our objective.

Today I introduce amendments to the Competition and Consumer Act 2010 to crack down on anticompetitive price signalling and to get a better deal for consumers in the banking system.

These laws will be initially targeted at the banking sector, because the ACCC has told us there is strong evidence of banks signalling their pricing intentions to each other in a bid to undermine competition.

We have been very clear all along that we would only extend these laws to other sectors of the economy after further detailed consideration.

The ACCC advised me last year that it was concerned about the behaviour of ‘some of the banks in signalling in advance what their response will be to a change in interest rates by the Reserve Bank’.

In the Senate Economics References Committee’s banking competition inquiry, due to report this month, the ACCC gave testimony that:

The problem with that sort of comment—the evil of it, if you like—is that it says to the competitors, ‘If you increase your interest rates I will follow,’ which means you are signalling to the competitor that if they increased their interest rates they would not need to worry about being stuck out there on their own and losing market share.

This type of anti-competitive price signalling can be just as harmful to Australian consumers as an explicit price-fixing cartel.

So there is a gap in our competition law which has allowed the banks to escape the full force and discipline of competition.

The ACCC provided very strong advice that banks were giving each other a ‘nod and a wink’ that they would raise their rates together.

However, because they were not actually writing it all down and signing in blood, or even agreeing verbally how they would act—they could get away with it.

This kind of conduct by the big end of town should never be allowed to continue when designed to dud Australian families.

That is why we are closing this gap in our competition law which is already dealt with in other major jurisdictions like the United States, the UK and the EU.

That is why we are building on our 2009 reforms to strengthen Australia’s cartel laws, by banning signalling designed to keep interest rates higher.

Our tough new laws will give the ACCC the power to take action against banks who signal their prices to competitors to undermine competition.

Policy development process

The government has been carefully developing competition policy in this area for some time, and monitoring global comparisons.

The OECD’s roundtables on facilitating practices and information exchanges, in 2007 and 2010, have clearly highlighted the harm to consumers that can arise from anticompetitive price signalling.

Many stakeholders in Australia strongly agree that anticompetitive price signalling is not prevented by our existing competition law.

They have told us that this conduct is best targeted by providing new, specific prohibitions which prevent price signalling occurring.

This is precisely the approach that we have taken to provide certainty to the business community whilst ensuring robust protection for consumers.

Amendments to Competition and Consumer Act 2010

This bill is fundamentally about stamping out conspiratorial behaviour by the big banks which is not caught by our competition laws.

These tough new laws have two limbs.

First, the bill gives ACCC the power to take action against any bank which signals its pricing intentions to a competitor for the purpose of substantially lessening competition.

We are cracking down on banks who purposely signal to their competitors that they should all raise their mortgage rates together.

It is inherently damaging to consumers for any bank to essentially say to its competitors ‘don’t worry—if you raise your mortgage rates then I won’t undercut you or take your customers’.

It allows banks to move their interest rates higher without the full discipline of competition—and at the expense of the consumer, and it is unacceptable.

This anticompetitive behaviour is a bad result for Australian families and small businesses.

This bill allows a court to infer the real purpose a bank has in making such a statement—so there is no need for a ‘smoking gun’.

Of course, we are not talking here about ordinary commercial communications.

Every Australian bank will be able to communicate with its customers, shareholders, market analysts, employees and other stakeholders in the ordinary course of business—just like they always have been able to do.

What we are doing here is cracking down on the insidious practice of signalling between banks which is designed to undermine competition and which inevitably hurts consumers.

The second limb of the law will prevent banks from discussing their prices with each other behind closed doors.

This prohibition is automatic because there can only ever be a limited range of situations where it is legitimate for competitors to discuss prices.

This prohibition is targeted at those disclosures which are the most clearly anticompetitive and which are most damaging to consumers.

For example, the ACCC can take action if one bank phones another bank privately to tell them about a planned mortgage interest rate rise.

Of course, the bill recognises there will be situations where banks need to discuss pricing with their competitors in a private context.

Exceptions and defences

We recognise that businesses need certainty and appropriate guidance so that they can conduct legitimate activities on commercial time frames—and keep providing services to customers.

That is why we have worked closely with the ACCC since mid-2010 to carefully design these amendments, and have consulted extensively on draft legislation with industry, legal experts and other stakeholders.

Of course, all banks will be able to fully comply with any continuous disclosure obligations they have, such as discussing their funding costs.

And they will be able to fully comply with their broader legal or regulatory obligations.

The bill contains explicit exemptions for all of this.

After consulting closely with the business community, we have also made amendments to ensure private disclosures of prices can continue for legitimate business activities.

This has been done largely by clarifying exemptions that were contained in the exposure draft legislation or by providing clear new exemptions.

For example, we have a clear exemption for banks who are considering forming a joint venture and need to discuss prices first to decide whether they should in fact enter a commercial arrangement.

Depending on the circumstances, an arrangement like a syndicated loan—when banks get together to lend to a business customer—would likely fit the definition of a joint venture.

That means that banks will be able to go ahead and get on with the business of lending provided they are not being anticompetitive.

We have got clear carve-outs in the bill so banks can distribute their products through financial planners or mortgage brokers.

There are then further exemptions so banks can keep talking to each other about trading financial market products such as bonds or currency.

The bill contains arrangements for banks to seek immunity when their conduct provides a net public benefit to the community.

This allows legitimate conduct to occur where it is not covered by one of the other explicit exemptions—some of which I have just mentioned.

Following consultation with the business community, the bill now includes a ‘notification’ regime to meet shorter commercial time frames.

Where a bank can demonstrate a net public benefit, they can obtain immunity by describing the conduct to the ACCC in a notice.

The ACCC then has a limited period of 14 days to respond if it has any concerns about the proposed behaviour.

This is significantly faster and more cost-effective than the ‘authorisation’ process that we had originally discussed with the business community.

Lenders could use this process to exempt a corporate ‘workout’ scenario—where they get together to resolve the finances of a troubled business.

Of course, robust confidentiality arrangements will be available for parties concerned about the commercial sensitivity of proposed conduct.

Conclusion

The bill I introduce today strikes an appropriate balance between allowing legitimate or procompetitive conduct, and cracking down on anticompetitive price signalling which harms consumers.

This important reform will help to ensure that banks can no longer avoid the full force of competition in the marketplace.

The Gillard government is absolutely committed to getting a better deal for Australian families and small businesses in the banking system.

The laws I introduce today are an important part of that.

I encourage all members of the House to support the passage of this bill.

Debate (on motion by Mr Andrews) adjourned.