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Banks defy financial gravity

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Big banks squib on passing on interest rate cuts to consumers:

BANKS DEFY FINANCIAL GRAVITY Senator Nick Xenophon says banks that fail to pass on the full extent of the Reserve Bank's rate cut yesterday should provide a detailed statutory explanation of why the full extent of the rate cut has not been passed on.

More importantly, big banks would be more likely to pass on the full extent of interest rate cuts if the Murray Financial System Inquiry's (FSI) recommendations were implemented.

The FSI found that in effect regional and cooperative-based banks were at a relative disadvantage to the big four because of:

x an unlevel playing field embedded since the GFC in the cost of raising capital, because of

differing capital reserve requirements that favour the big four; x an unfair cost advantage to the big four by virtue of the way they are treated by ratings

agencies; x The effective taxation bias

x The FSI also recommended that the main regulators APRA and ASIC should give a to give a

higher priority to promoting competition and consumer choice in the banking sector; x remove the effective taxation bias against community-owned banks.

"Right now the 'four pillars" are like a big brick wall when it comes to passing on the full extent of rate cuts to consumers," Nick said.

"If only the banks were as quick in cutting rates when they go down as they are at increasing them when the cash rate goes up."

Senator Xenophon said if the Government failed to act soon on the recommendations of the FSI he would introduce legislation to "level the playing field so regional and cooperative banks had a fighting chance to compete more fairly for the benefit of consumers".

For more information contact Karina Natt 0433 620 850.