Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. Why is supporting smaller lenders important for competition in the banking sector?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for Dobell for that very important question, because it is indeed important to support smaller lenders for competition in the banking sector. In the decade and a half before the global financial crisis, the residential mortgage-backed securities market was a key driver of competition in the banking system and a key driver of cheaper rates in the banking system. But, when the global financial crisis hit, it destroyed investor appetite for residential mortgage-backed securities and it destroyed an important source of funding for our smaller lenders. This was despite the fact that RMBS in Australia were quite safe; they were a good investment. But the market was simply destroyed.

It therefore became very important for the government to take action to support the smaller lenders and, particularly, to give them a hand to make sure that they were still competitive in the face of this destruction and carnage going on in global financial markets. That is why the government, first in October 2008 and again in November 2009, made two very substantial investments—up to $16 billion—in residential mortgage-backed securities. The government did this so we could get a source of cheaper funding to these lenders to keep the superstructure of the industry alive. It was very important.

Not one single dollar of this investment of $16 billion went to the major banks. Every cent was invested in our regional banks, in our credit unions, in our building societies and in our wholesale funders—small lenders like the Bank of Queensland, Bendigo and Adelaide Bank, Suncorp, ING, Liberty Financial and the Australian Central Credit Union. Of course, this has been acknowledged by a number of the smaller lenders. Just take Mr Dunn from AMP. This is what he has had to say:

… there is little doubt that without the government’s support of the RMBS program AMP would not have been able to continue to offer competitive mortgage and deposit products.

And so improve the level of competition in banking. Or we could go to another smaller wholesale lender like Liberty. They said:

The RMBS purchase program … played a key role in stabilising … securitisation markets. As a result, Liberty Financial has been able to provide much needed competition in the bank-dominated mortgage market …

It has not just been about the mortgage market. It has also been about funding for small business. This is what RESIMAC has had to say about this program:

It has been vital to committing a continual flow of finance to the small business community.

They go on to say:

Without such support there would be literally thousands of Australian small business owners who would have been deprived of access to finance.

So this government has acted and it has acted to strengthen competition, particularly in these vital sectors. These actions stand in stark contrast to the shallow populism of those opposite. We are interested in the long term. We are passionate about our commitment to a strong and prosperous economy and a strong and competitive banking system to go with it.