Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

My question is to Senator Wong, the Minister representing the Treasurer. The Australian Office of Financial Management administers a scheme for residential mortgage backed securities which provides access to funds at a lower interest rate than financial institutions would otherwise be able to access for home lending. The scheme is intended to assist financial institutions other than the four major banks to offer competitive home loans. Last year Aussie Home Loans entered into discussions with the AOFM to secure these funds; however, at the eleventh hour, Aussie Home Loans was rejected, purportedly on the basis that it is a subsidiary of the Commonwealth Bank. However, the Commonwealth Bank only has a 33 per cent shareholding in Aussie Home Loans and Aussie is a private company; the Aussie shareholding will always outvote the CBA’s. On what basis does the AOFM evaluate ‘subsidiary’ given that in legal and business terms a subsidiary involves at least a 51 per cent shareholding?

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

I thank the senator for his question. He accurately identifies that the government has put in place I think three tranches of residential mortgage backed securities which are administered by the Australian Office of Financial Management. This was part of our approach during the GFC and beyond and part of our approach to ensuring that we seek to maximise competition within the banking sector to the benefit of Australian consumers.

It was not the intention of the residential mortgage backed security investment program to support major banks or their subsidiaries, whether partially or fully owned. Obviously, this assessment is different for each lender. It is clear that Aussie Home Loans is not independent of the Commonwealth Bank given the CBA’s strong involvement in board decisions and strategic settings and the CBA’s financial interest in Aussie Home Loans’ profitability. I am advised the government has been clear since the outset of this program that funds would not be available to subsidiaries of major banks, whether partially or fully owned. That has been the position that the government has taken on this issue. That has been consistently applied in relation to Aussie Home Loans and across this program.

The government did make clear that this was a program intended to support institutions other than the major banks or their subsidiaries. It was expressed quite clearly to be a program that was about supporting competition in the banking sector, recognising that, as a consequence of the GFC, the non-major sector—the smaller lending sector—was having some challenges in securing this particular type of finance.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. Does the government acknowledge the role that Aussie Home Loans had in the 1990s and has had since then in terms of providing competition in the banking sector? Can the government confirm that the whole issue is that Aussie Home Loans was told it was a subsidiary of the Commonwealth Bank and that the government has shifted the goalposts in terms of their criterion? The criterion was always one of subsidiary, not one of having any partial ownership.

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The advice I have, Senator Xenophon, is that it was not the intention of the government’s program of investing in residential mortgage backed securities to support major banks or their subsidiaries, whether partially or fully owned. My point is that I do not accept the premise of your question that the goalposts were shifted. The advice I have is that it was quite clear that it was ‘whether partially or fully owned’ and that has been the government’s consistent position. This is a matter in relation to the administration of the program, not in relation particularly to Aussie Home Loans, although I acknowledge that the effect of this on Aussie Home Loans has obviously been of some significance for them. It is a very important program. It injects funds into this sector, which is needed. (Time expired)

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

Mr President, I ask a further supplementary question. Two of the major banks, through their subsidiaries, have an over 11 per cent share in the Bank of Queensland and the same two major banks have a 17.5 per cent share in Suncorp. Yet both the Bank of Queensland and Suncorp have received this RMBS funding. On this basis, why have they and not Aussie Home Loans received RMBS funding, particularly when you consider that their contribution to the major banks that have shareholdings, in relative terms, would be much greater to their bottom line?

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The advice I have is that the Australian Office of—

Eric Abetz (Tasmania, Liberal Party, Shadow Minister for Employment and Workplace Relations) Share this | Link to this | Hansard source

Certainly not from your side!

Honourable Senators:

Honourable senators interjecting—

John Hogg (President) Share this | Link to this | Hansard source

Ignore the interjections, Senator Wong. They are disorderly.

Michael Forshaw (NSW, Australian Labor Party) Share this | Link to this | Hansard source

You ought to get Godwin Grech to write yours!

John Hogg (President) Share this | Link to this | Hansard source

Order on both sides! We have been going reasonably well.

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The advice I have to Senator Xenophon is that the Australian Office of Financial Management advises that the two examples to which he refers are not directly held stakes but are held by those major banks, possibly through their wealth management business—I do not have the detail of that—as nominee for third party investors. The advice I have—and I am happy to see whether there is anything further I can add to this—is that the ownership structure of the two examples you have raised differ from the Aussie Home Loans example which you have identified. If I have further information on that, I will provide it.