Federal Treasurer Wayne Swan’s proposed banking reforms have received mixed reviews from business and banking representatives.
Swan yesterday announced a raft of reforms including opening up funding for smaller lenders, cracking down on price signalling and banning mortgage exit fees.
According to Swan, the package will ensure interest rates are lower over time, a claim challenged by the Australian Bankers’ Association, which says banks will need to recover the costs of the new measures by way of higher establishment fees or higher interest rates.
The reform package will see a ban on mortgage exit fees on new mortgages, to come into force from July 2011 as a way of making it easier for mortgage holders to change lenders.
Although exit fees on existing mortgages will remain, Swan says a crackdown on unconscionable conduct in the banking system may see these phased out over time.
Australian Bankers’ Association chief executive Steven Munchenberg welcomes measures to enhance competition but says banning exit fees will hurt smaller lenders.
“Smaller banks have less scope to recover those costs from across their businesses,” he says.
Shadow Treasurer Joe Hockey is also critical of the package, describing it as “political relief” for the government rather than mortgage relief for customers.
“It is about the Government’s political catch-up rather than the systemic overview and reform so necessary to deliver more competition and to deliver a more secure and stable banking system into the future,” Hockey said.
Major features of the reform include:
Swan has also asked former RBA head Bernie Fraser to examine a new set of reforms, including total portability of business banking.
“This package is all about helping the customers, helping households, and helping business so that we can build up competition in our banking system, which will ensure that interest rates are lower over time,” Swan said.
Peter Strong, executive director of the Council of Small Business of Australia, gave his “congratulations” to the government for undertaking “the biggest review into the finance sector that we’ve had in 20 years”.
“It puts the big banks on notice and we can’t condemn that,” Strong says.
“The portability bank account – we’ve very pleased to see a feasibility study and I’m confident things will progress further. We would, however, like to see a progress report.”
Strong expressed some concern over the lack of specific focus on small firms in the review.
“Everything I’ve read is about the consumer. From a small business point of view, the reforms may take the focus away from us a bit more, which isn’t what we want,” he says.
“It would be nice to see an amount of money made available to the small business sector in the same way it has been made available to the mortgage sector.”
Strong says it’s difficult for small businesses to monitor the development of banking reforms and would therefore like to see the establishment of an advisory committee focusing on the plight of small businesses.
“It wouldn’t have to meet often, but it would give Swan direct advice from small businesses on the impact of his [banking] package,” Strong says.
