David Coleman (Banks, Liberal Party) Share this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report, incorporating dissenting reports, entitled Review of the four major banks (second report),together with the minutes of proceedings. I ask leave of the House to make a short statement in connection with the report.

Leave granted.

The second report into Australia's four major banks follows the publication of the committee's first report on 24 November last year. It draws on the March 2017 public hearings held by the committee with the chief executives of the four major banks. The March public hearings provided the committee with an opportunity to scrutinise the banks over their response to the initial 10 recommendations of the committee's November report. The committee also scrutinised the banks on the Carnell report's recommendation on the use of non-monetary default clauses in small business loans.

The committee's second round of hearings has confirmed its view that the recommendations of the first report should be implemented in order to improve the Australian banking sector for the benefit of customers. While the committee is open to some modest variations to the recommendations, it affirms the substance of each of them. I would now like to turn to a number of the recommendations.

Recommendation 1 of the first report proposed the establishment of a one-stop shop where consumers can access redress when they are wronged by a bank. The committee retains its view that one dispute-resolution body should be established to provide straightforward redress for consumers. It is highly preferable to have one body dealing with these matters rather than two or more, as is the case at the moment. The committee believes that the Ramsay review should determine the precise administrative structure of this body—the key point is that it should be a one-stop shop.

Recommendation 2 of the first report calls for a new public-reporting regime to be put in place to hold senior executives much more accountable. Executive accountability is a critical issue and the reality is that banking executives have not been held sufficiently accountable to date. The fact that no senior executive has been terminated for any of the breaches of customer faith that we have seen in recent years is an indictment of the sector. This must be rectified through the establishment of a rigorous executive accountability regime.

Recommendation 3 of the first report proposed that a regulatory team be established to make recommendations on improving competition in the banking sector to the Treasurer every six months. The ANZ agreed with recommendation 3 and noted that 'analysis from a government agency would help demonstrate the nature and level of competition.' The other banks opposed this recommendation, for reasons the committee does not find persuasive. At the moment, there is a significant gap, in that no regulator is charged with the systemic investigation of competition in the banking sector on a day-to-day basis. That should change, and our recommendation would do that. We do need a permanent team focused on systemic competition issues in banking, and we recommend that to the government.

Recommendations 4 and 5 of the first report were all about empowering consumers. Recommendation 4, in particular, proposes that financial services institutions be required to open up access to consumer data by July of next year. What that means is that transaction and other data which is currently held by the banks could with the consent of the customer be provided to competitors of those banks. That is a good thing because it means that competitors of the big four banks will have the opportunity to better understand the nature of that particular customer and make them better offers, increasing competition in the sector. The key point is that that means that an asset which is currently proprietary to the banks—namely, that data—would become non-proprietary, not owned by the banks, in the future. What that means is that the banks are conflicted. When the banks say that they support the opening of that data, that is interesting in theory, but what must occur is that the process of opening up data and the rules around it must be independent of the banks. It should not be what is sometimes described as an industry led model. It should be led by an independent body. This has the potential to be a very substantial economic reform for Australia, because it is taking, in a sense, a latent asset that is sitting within the banks at the moment—namely, a large volume of financial services data—and with the consent of customers putting that into the marketplace so that other offers and deals can be offered. That is very important. The UK is going down this path. We should too.

Another important recommendation relates to barriers to setting up a bank. One of the most striking pieces of information to come out of this inquiry, for me, was the number of new banking licences that had been issued in Australia in the last 10 years for new start-up entities—not credit unions converting into banks but actual new entities. In the last 10 years, the total number of new licences issued is one. There has been one new licence for a bank in Australia in the last 10 years for a local start-up entity. That is reflective of what is, in the community's view, a lack of competition. There are certain rules around the establishment of banks at the moment. One of them is that no person can own more than 15 per cent of an entity that has a banking licence. Another is that a new entity has to have $50 million in the bank before it can loan even one dollar. There are a range of other restrictive rules. We would like to see changes to those rules, to stimulate the formation of new banks in the banking sector. We still have a situation where the big four have about 85 or 90 per cent of the banking market. That is highly concentrated and, given that there is about $450 billion of enterprise value in just those four entities, it seems to the committee that there should be a much greater flourishing of competition. Where regulation stops competition, as it currently does in relation to getting a banking licence, it should be changed, not to in any way risk the important prudential rules in relation to holding a banking license but to get rid of, frankly, unnecessary rules which just have the impact of suppressing competition. That should be changed. The UK has also gone down this path. There have been significant numbers of new banking licences in recent years in the UK and we should adopt something similar here.

Another issue that the committee focused on in the second round of hearings was the Carnell inquiry's recommendation in relation to what is known as non-monetary default. Non-monetary default is basically where you as the borrower have made all your payments to the bank on time—you have done the right thing and paid in full—but, nonetheless, the bank defaults your loan for reasons that are usually beyond your control. You have made all of your payments on time and in full, but, nonetheless, the bank finds you to be in default. For small businesses, this is obviously a very unacceptable and galling situation when they have done the right thing but are still found to be in default. Kate Carnell in her inquiry recommended that this process be stopped for loans of less than $5 million, which would cover about 98 per cent of all small-business loans. The committee, in reviewing this issue and in pressing the bank executives on it, did not find their arguments about why these non-default clauses were necessary persuasive, and the committee recommends that non-monetary default clauses be abolished for loans to small business. If the banks do not do that of their own accord by 1 July this year, our view is that the government should act in that area.

The committee's first report made several important recommendations. The second round of hearings has affirmed the broad thrust of those recommendations. We believe these recommendations should be implemented and we look forward to the government's response.

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