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Monday, 22 November 2010
Page: 3265

Mr VAN MANEN (8:56 PM) —Whilst our banking industry is not perfect, throughout the global financial crisis it demonstrated remarkable resilience—aided by the implementation of both the wholesale funding guarantee and the retail deposit guarantee by the current government. It should not be underestimated that this occurred due to Australia’s strong financial position prior to the global financial crisis—a position the current government inherited.

The member for Melbourne’s proposed bill, the Banking Amendment (Delivering Essential Financial Services) Bill 2010, is predicated on seeking to control the level of bank profits and interest rate rises. Restricting banks’ ability to price service offerings profitably and restricting their ability to set interest rates according to funding costs will result in them seeking to achieve savings elsewhere.

As an offset, the banks may seek to reduce interest rates on investment products which, in turn, will put additional pressure on retirees, who rely on the interest income from their term deposit and investment accounts to fund their retirement income. In addition, if the banks offer overseas investors lower interest rates, they may also seek new investment alternatives, thereby reducing capital in the system further and consequently pushing interests higher. Therefore, all the options outlined in the proposed bill, rather than mitigating the risk of further interest rate increases, will produce the opposite effect and actually create preconditions for further interest rates rises.

The questions raised by this bill include whether additional regulations in the banking sector provide the consumer with any significant benefits and whether more regulation will reduce the costs for consumers. The member’s proposed bill seeks to amend the Banking Act in four main ways: that banks offer basic transaction accounts that are free from account-keeping fees and penalty fees and limit other fees to a level sufficient to recover the cost to the bank; that transactions at a bank’s own-branded ATMs are free of charge; that charges for the use of the bank’s ATMs by customers of another authorised deposit-taking institution are capped at the cost of service provision; and that banks provide a debit card linked to the account.

In the second reading of this proposed legislation in the Senate, Senator Bob Brown stated:

Recently, consumer organisations have successfully campaigned for a better deal from the banks. The banks have responded to some extent and voluntarily improved their approach to fees in some areas.  For example, now most banks do not charge their own customers for the use of another bank’s ATMs, even though it is open to them to do so.  Other banks have dropped overdrawn account fees and reduced their other penalty fees.  A number of banks have also introduced fee-free or low fee basic accounts for low income customers.

A quick check of the transactional products available through the major banks and some of the smaller banks and credit unions shows that most institutions already provide these types of accounts. The requirement to provide a real-time warning of a proposed fee and the ability to cancel the transaction already exists for ATM transactions when conducting a transaction at a foreign ATM.

The other requirements, particularly the requirement to advise of a fee in the event of an electronic or face-to-face transaction, will impose additional burdens on merchants and service providers and potentially be embarrassing to the account holder as this would be a discussion conducted in the public arena. I certainly would not be happy to be standing in the queue at Woolworths paying for my groceries when the checkout operator has to ask me whether I am happy to proceed with the transaction because a small fee is payable. Seriously, am I going to say no and put all the groceries back? I think not, of course.

As an example of what these fees pay for, I set up a new online account over the weekend and within the space of half an hour my bank suspended the credit card used for the payment pending confirmation from me of the transaction. I phoned the 24-hour service line and confirmed the transaction, at which time they removed the suspension and also suggested an alternative account type to reduce my monthly fees. This is a great example of why the proposed bill is not required. This bill is just another example of unnecessary legislation that is seeking to absolve customers from taking personal responsibility for understanding and managing their own financial affairs. Terry McCrann, in the Courier Mail on 18 November, wrote:

The Greens’ stupidity is exquisite at both the micro and macro levels. Ban ‘foreign’ ATM withdrawal fees. The effect will be to ban most ATM withdrawals as the banks stop allowing ‘foreign’ withdrawals.

The end result would be reduced consumer access and flexibility. The other major problem with this bill is the attempt to place restrictions on interest rates that banks charge on their loans. This would be the final nail in the coffin for consumers and small business in being able to obtain finance at reasonable rates.

Already small to medium business borrowers, despite providing all the same security and in most cases more security than a home loan borrower and through the necessity to provide personal guarantees and charges over business assets, are paying a significantly higher interest rate on their business loans than home loan borrowers. This differential is made all the more ludicrous when you consider that the small to medium business owner, who has a home loan and a business loan, will be paying two different rates of interest yet both loans will have the same security, and repayment of both will be funded from the income generated in the business.

Phil Ruthven from Access Economic noted in a presentation earlier this year that the primary driver of recessions in Australia was not a fall in consumer spending but the direct result of the fact that business had lost access to capital to continue to grow and develop. The government’s response to the global financial crisis has reduced competition in the provision of banking services in Australia and, as it continues to borrow $100 million or more per day, is continuing to put upward pressure on interest rates and is reducing the capital available in the market for small to medium business. This capital would be far better allocated by business as it would seek to utilise that capital productively to employ staff, manufacture goods and make a profit.

The coalition, by contrast, is seeking via its nine-point plan to create a positive framework in which competition is enhanced via: an investigation by the ACCC of anticompetitive practices such as price signalling; an investigation by APRA into unnecessary bank risks to pursue short-term returns; regular reporting of bank interest margins, returns on equity and profitability; more government support for small lenders; improved liquidity for the mortgage backed securities market; a complete review of the financial system; further simplification of the Financial Services Reform Act to reduce cost and complexity; an investigation by APRA into the banks’ lending practices for small business; and investigation as to whether banks should be able to issue ‘covered bonds’. It is through positive market based solutions, together with considered regulation and the government removing itself from the market by returning to budget surpluses, that a better outcome will be achieved by all parties to allow our economy to grow and prosper.