David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I also rise to contribute to the debate on the Banking Amendment (Covered Bonds) Bill 2011. In the coalition's nine-point banking plan, announced on 25 October 2010, at point No. 8 it was recommended that a debate about whether the banks should be able to issue covered bonds in the same way that other jurisdictions allow their banks to should be commissioned. This was the first time that either major party had publicly declared support for changing a long-held view that covered bonds were not consistent with our banking laws, primarily due to the impact it has on depositor primacy in the event of a bank wind-up—that is: the idea was ours, not the government's. But, as so often happens with this government, it soon followed and adopted our idea, and even had the temerity to try to present it as its own. But here we are, 12 months after the coalition put the idea on the table, and the government is finally seeking to implement it.

As has been outlined by my colleague Senator Cormann, we are, not surprisingly, fully supporting the bill and the outcomes that it seeks to legislate. But I think it is useful to look briefly at the context of the events 12 months ago and the government's approach since. Our nine-point plan was released in the context of considerable public concern about the direction of interest rate changes, particularly rises implemented by the banks independent of the official cash rate. The government was very slow to respond to what were very valid concerns of the public, releasing its Competitive and Sustainable Banking System report in mid-December.

In the meantime the Senate, on a motion jointly moved by Senator Williams, Senator Xenophon and me, had moved to set up a comprehensive Senate inquiry looking into the state of competition in the banking industry and inter alia the impact of competition on prices within the banking industry. I thought it was always interesting that the government's report was released the day before the first major hearing of that inquiry. Having had the benefit of that inquiry and its findings, I acknowledge that the government's report did contain some useful measures—mostly, like the covered bond recommendation, copied from our nine-point plan. But it did not go anywhere near far enough in addressing some fundamental issues and challenges, particularly in the broader funding side of things that the inquiry found were required. Indeed, the inquiry made some 39 recommendations on matters that it considered, if implemented, would collectively serve to increase the level of competitive tension within the banking industry without sacrificing standards or protections for consumers.

One of these was to allow the issuing of covered bonds by Australian prudentially regulated entities. But there were many others, which have not yet been addressed by the government and which in the absence of action mean that Australians continue to enjoy a less competitive banking environment than they might otherwise, and hence likely higher rates and fees than they might otherwise—recommendations that were designed to help address the competitive disadvantage that smaller institutions face in obtaining funds that they can then lend out at a price and availability that enables them to compete on rates and fees with the larger players; and recommendations that would remove some of the legislated taxation disadvantages that make it harder for foreign banks to compete on price with locals, meaning local banks do not have to price as keenly to maintain market share.

Examples include some that could be implemented immediately, like the standardisation of the fee for all borrowers under the wholesale funding guarantee, for the run-out period of those guarantees; or tweaking the terms of which the AOFM can purchase RMBS to allow it the discretion to purchase securities issued by entities with a substantial bank shareholding where it judges this would promote a more competitive market; or even to allow it to consider assets other than those based on home mortgages or securities rated AA or A.

I might mention here that the RMBS market, upon which a lot of the competition from small players in the 1990s and the early 2000s, like Wizard, RAMS and Aussie depended, depended almost entirely on the availability of money that was raised through the RMBS securities market. At this stage it does not look like that market has fully recovered. Although there have been some positive signs over the last six or so months, those signs have not necessarily been followed through. Quite clearly, measures that could be implemented by the government that would improve the attractiveness of the RMBS market in Australia to investors would be well worth while following for the end result of better competition in the Australian financial sector and better prices for consumers.

Other recommendations included requiring the Reserve Bank to publish more of the information it currently holds to show its assessment of the comparative overall cost to the consumer of the various products available from financial institutions, and a range of recommendations designed to lower the burden for consumers and businesses when they switch banks; or even simply allowing mutual financial institutions to call themselves a mutual bank or approved banking institution.

There was a lot contained in that report that would be of benefit to Australian consumers of bank and finance products, yet this government seems to think that, because it put out a report last December tackling a few minor aspects of what could be done, it has acquitted itself of any obligation it has to consider the issue. I contend that the government needs to do more and that the blueprint contained in the Senate Economics References Committee report into competition within the Australian banking sector is a good place to start.