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Transcript of interview with Lyndal Curtis: ABC Radio, AM: 13 December 2010: Competitive and Sustainable Banking System package
THE HON WAYNE SWAN MP Acting Prime Minister Treasurer
ABC Radio, AM Program
SUBJECTS: Competitive and Sustainable Banking System Package CURTIS: Wayne Swan, welcome to AM. TREASURER: Good to be with you. CURTIS: Does this package show that the Government really can only operate around the margins, that it can't do too much unless you're willing to reâregulate the banks or in fact buy back in? TREASURER: Lyndal, I believe that this is a very, very substantial package. It empowers consumers to walk down the road, to get a better deal. Very substantial measures to support lending by the smaller lenders, by the mutuals, by the regional banks, by the building societies. And then of course fundamental changes when it comes to improving funding for our financial system, channelling the savings of Australians into the banking system and lessening our dependence upon overseas wholesale funding. So a balanced package which deals with the needs of consumers, but also some of the structural factors in the banking system itself. CURTIS: The major banks cited funding costs as the reason why they lifted interest rates beyond the Reserve Bank's rate rise. Will this package help them with their funding costs or is it mainly aimed at the smaller end of the sector? TREASURER: No, the introduction of covered bonds will help the sector broadly and certainly also help the bigger banks. But of course, there was no justification for the four larger banks to move over and above the Reserve Bank decisions, none at all.
Their interest rate margins, their net interest rate margins are at levels they were prior to the crisis. They were exploiting their market power and why we brought this package in is to make the market much more competitive â to remove some of those barriers that lock their customers in and don't give them the ability to walk down the street and get a better deal where it already exists because of these barriers which lock them in. And this package aims to remove some of those very big barriers which hold them ransom to the big banks. CURTIS: You're banning exit fees from next year, how do you stop those fees being passed on through other measures and won't this move affect the smaller institutions more because they also charge the fees? TREASURER: Well firstly, through ASIC there is the power now, which we have put in place, to deal with the banks putting in place unfair fees and charges. CURTIS: But they could put in place a larger series of smaller fees couldn't they? TREASURER: Yes, and if they do that and they are not related to costs and if they are just penalising their customers they can be prosecuted by the regulator. These are reforms we've already put in place, we're taking a further step in this package of banning exit fees altogether for new loans. But for existing loans we have already put in place a way in which ASIC can deal with these questions and if the banks decide to go through the back door, if you like, after exit fees are abolished, we can deal with that through our regulator. CURTIS: How do you cope with the smaller lenders who also have the fees and some say rely on them more than the bigger banks do?
TREASURER: Well there is simply no justification for any lender to have a mortgage exit fee say of the order of $7,000. Whether you're a smaller lender of a larger lender, that is absolutely unfair and it can't be tolerated. There are many in the sector who wish to see the abolition of these fees who are smaller lenders, there are smaller lenders who have already abolished their mortgage exit fees. CURTIS: Isn't that competition then, isn't the system working without the need for the ban? TREASURER: Well we have been increasing competitive pressures in the system already through measures we've put in place over the last two years. But what I'm announcing now are further measures to further increase competitive pressures in the sector. CURTIS: You also will have the ACCC look at the question of banks signalling to each other
what they think about price, about rate rises. You say the courts won't need a smoking gun, but isn't a smoking gun generally what's regarded as evidence? TREASURER: Well the purpose of this legislation which we will put out there for consultation with the sector over the next few weeks is to identify price signalling because what price signalling can do is dramatically reduce competition and what we have to do is deal with it. I've been advised by the ACCC that they have seen evidence of price signalling but they have not had the power to deal with it. This package will deliver that power to them, to crack down on price signalling. The content of the legislation will be subject to consultation with the industry but where statements are made which have the purpose of lessening competition in the sector, the ACCC will have the power to deal with that. CURTIS: But it's a very fine line isn't it, between what one may regard as price signalling and another. So a bank might regard as giving information to its shareholders and its customers â isn't the impact likely to be that banks will be less free with their information? TREASURER: Look I don't believe so. I believe that other countries in the world have put in place price signalling legislation. It is common in other developed economies, we don't have that power here. I believe the ACCC has the maturity and the technical capacity to operate this law. We will put it out for consultation because we are absolutely determined to crack down on those who will use price signalling to rip off their customers. CURTIS: So what's the ACCC going to do â it's both signalling public and private, are they going to follow bankers around to cocktail parties? TREASURER: Well what the ACCC will do will be administer the law, which we will put out for consultation in the next few weeks. CURTIS: Australia has what's regarded as a safe and successful banking industry, it's a major part of the economy, are you absolutely confident these measures won't impact bank profits to the extent that that has an impact on the economy? TREASURER: Well the most important thing is we have a stable sector and a competitive sector. The Government moved comprehensively back in 2008 to reinforce the stability of the Australian banking system. The previous government had refused for 12 years to put in place a financial claims scheme. We put that in place. When the financial crisis really hit, we put the bank guarantees in place, the deposit guarantees, the wholesale funding guarantees. Over the past couple of years we've been investing in residential mortgageâbacked securities to support our smaller lenders. The banks are now very strong but the system is not as competitive as it should be because of the impact of the global financial crisis on the funding sources, particularly for
smaller lenders. That's why this package is dealing with supporting the smaller lenders in particular, to access finance so they can provide really tough competition for the big four. CURTIS: You're going to have to get these measures through the parliament, are you likely to face the Opposition or the independents trying to tack other measures on to this legislation? TREASURER: Well Mr Hockey has already been out there today supporting mortgage exit fees as high as $7,000. I'm gobsmacked by that approach. You've had Mr Abbott indicate on the television a day or so ago that he intends to wreck the package. I hope common sense prevails in the end. These are good measures, they will be effective and enduring and the country needs it for banking competition and economic prosperity. CURTIS: Are you willing to consider other measures being put up say by the Greens or the independents? TREASURER: Look, as always, we will talk to the parties in the parliament, including the independents and the Greens. EASTLEY: The Federal Treasurer , Wayne Swan, speaking there with our Chief Political Correspondent, Lyndal Curtis.