Liberals, Xenophon drive towards new Senate banking Inquiry

A new wide-ranging Senate Inquiry into banking competition appears almost certain after independent Senator Nick Xenophon joined forces with the Liberal Party.

The plan for the Inquiry comes just 48 hours after the shadow treasurer, Joe Hockey, repeated his call for a follow-up to the 1997 Wallis Inquiry into the financial system.

This Inquiry would not have the scope of the Wallis Inquiry. But it would be the first wide-ranging Australian financial system Inquiry since the onset of the global financial crisis. The crisis has substantially changed thinking about the financial system, with experts such as Wallis Inquiry architect Professor Ian Harper saying a rethink is needed.

The Senate Inquiry would examine a number of issues, including competition between banks and non-banks, banks' cost of capital, and obstacles to new services and the entry of new providers. The Inquiry is expected to go ahead with the support of the Greens.

"We don't need to increase regulation of banks," said Senator Xenophon. "What we need is more competition."

Liberal Senator David Bushby joined Senator Xenophon in calling for the Inquiry.

The Australian Bankers Association said it would participate in such an Inquiry. But ABA chief executive Steven Münchenberg wryly suggested any Inquiry start by reading the documents "from the half dozen Inquiries into aspects of competition in banking and financial services which have been held in the past two years."

"There is clear evidence of competition in Australia's banking system," he said.

"In the past two years, banks have slashed, or removed altogether, a range of unpopular fees, such as late payment and overdrawn account fees, as they fight for customers' business."

Hockey said yesterday that the rise in the NAB's headline profit "has come on the back of a massive reduction in competition."

Senator Xenophon's proposed terms of reference for the Inquiry are:

   1. The current level of competition between bank and non-bank providers
   2. The products available and fees and charges payable on those products
   3. How competition impacts on the fairness of terms that may be included in contracts
   4. The likely drivers of future change and innovation in the banking and non-banking sectors
   5. The ease of moving between providers of banking services
   6. The impact of the large banks being considered 'too big to fail' on profitability and competition
   7. Regulation that has the impact of restricting or hindering competition within the banking sector, particularly regulation imposed during the global financial crisis
   8. Opportunities for, and obstacles to, the creation of new banking services and the entry of new banking service providers
   9. Assessment of claims by banks of cost of capital
  10. Any other policies, practices and strategies that may enhance competition in banking, including legislative change
  11. Comparisons with relevant international jurisdictions
  12. The role and impact of past Inquiries into the banking sector in promoting reform
  13. Any other related matters