The interim report of David Murray's panel is a cautious and mostly pragmatic survey of issues affecting the finance sector.The Financial System Inquiry's interim report mainly suggests that Murray and his panel are struggling to find nation-changing banking reform recommendations. We'll probably face the next banking crisis with roughly the same system we have now.The panel's thirst for reform is hard to read, with the report listing issues and exhaustive policy options but articulating few definite preferences.Murray put it this way in his talk to the National Press Club yesterday:"The report sets out our views on the objectives of the financial system and the principles that should guide its development. It discusses the financial system from nine different perspectives and makes 28 observations about how the system is working," he said. "These observations reflect the Inquiry's current judgments, based on available evidence."We welcome additional evidence from interested parties to support, challenge or give context to these observations."Throughout the report, we canvass possible options for change. These options are not draft recommendations. "We've generally identified a broad suite of options rather than selecting a single preferred solution. We've included the option of no change in each case because we want to be sure that any change we recommend will deliver a better balance of policy outcomes than the status quo."It was the Press Club talk, rather than the report itself, which shed most light on the panel's leanings.Murray told the Press Club that international standards were no longer an "optional extra," especially for a major capital importer like Australia. "International standard setters and the decisions of foreign regulators have a much greater influence on our regulatory settings now than they did in 1997," he said.And it appears the regulatory status quo gets a tick from the panel. With a "no room for complacency" theme, what the Inquiry is really saying is that the existing prudential system works as well as any and the panel does not seem poised to make radical changes.The interim report says the system generally performed well during the global financial crisis. And its main focus is on changing a national perception that banks will be bailed out during a crisis.However, the Inquiry's interest in "ring-fencing" of retail banks -an agenda common in Europe - will concern the major banks. So will its interest in a "further increase in the capital requirements on the financial institutions considered to be systemically important domestically" - essentially, the Big Four banks.The big bank agenda, centred on angst over Basel III, gets some sympathy from the FSI panel, though.The interim report proposes to:- Calibrate Australia's prudential framework, in aggregate, to be more conservative than the global median. "This does not mean that all individual aspects of the framework need to be more conservative", the report said.- Lessen "national discretion" for APRA and "calibrate system safety through the setting of headline requirements". - Develop public reporting of regulator-endorsed internationally harmonised capital ratios with the specific objective of improving transparency.The Inquiry agrees with submissions