Shadow Treasurer Joe Hockey has called for additional powers for the ACCC to act against collusive price signalling, and a major “son of Wallis” financial regulation inquiry, amongst a suite of measures to deal with the ambitions of Australians banks to aggressively expand in the wake of the Global Financial Crisis.

Hockey laid out his case this morning at an Australian Industry Group conference, expanding on his calls last week for a debate on the future of banking regulation, in terms that are likely to be vigorously disputed by the Big Four.

Hockey described how the impact of the GFC on the non-bank lending sector has meant the major banks had in essence become the Australian financial system. Their “too big to fail” status, at odds with one of the principal recommendations of the Wallis Inquiry that governments not guarantee parts of the financial system for fear of moral hazard, strengthened the case that they now be regulated more like “bullet-proof utilities that are focused on delivering stable returns to shareholders” rather than “growth stocks, like resources or technology companies”.

Hockey’s to-do list would be the most substantial overhaul of financial sector regulation since Wallis and, arguably, since the Campbell report in the early 1980s:

  • ACCC to be able to  investigate collusive price signalling;
  • APRA to be able to investigate the Big Four are taking on unnecessary risks in the name of trying to maximise short-term returns;
  • The RBA to regularly report on bank net interest margins, returns on equity, and profitability;
  • Consider the call by David Murray to enable Australia Post to use its branch network as a distribution network for smaller banks;
  • Task Treasury and the RBA with developing ways to improve the liquidity of the residential and commercial mortgage backed securities markets, with the aim of further strengthening competition from non-bank lenders;
  • Simplify the Financial Services Reform Act, to make life easier for business
  • APRA to investigate whether the risk-weightings on business loans secured by residential properties is appropriate;
  • Resolve the debate about whether the banks should be able to issue “covered bonds”;
  • A full review of the financial system.

This speech — which is a great summary of the case for further banking regulation — is a key moment in the debate over financial regulation, which has been brewing since the Six Economists’ paper last year, and before. Hockey has now staked out a position for the Coalition well in advance of the Government, and put real political momentum behind the issue. The onus is now on Wayne Swan to do more than merely point to the second-tier banks and credit unions as a source of competition for the banking cartel.

Labor is unlikely to be well-disposed to taking on banking regulation reform when it already has a smaller reform agenda on superannuation and financial services and is wary of falling into the trap Kevin Rudd fell into of trying to do too much at once. Nevertheless, Hockey’s logic about timing is impeccable — we need to put in place the lessons learnt from the GFC now to ensure we’re able to survive the next financial crisis as well.

For a Government that looks bereft of an ambitious agenda and inept at prosecuting the one it has, it should see Hockey’s activism as an opportunity to put in place substantial reforms for one of the most critical sectors of the economy.

Peter Fray

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