Jun 23, 2014

Financial System Inquiry – Too Big to Ignore

Australia’s banking system needs to be overhauled so that consumers come first, argues the COBA chief executive



Three years after it was first flagged by Joe Hockey the Financial System Inquiry is now well underway.

Chaired by David Murray, the Inquiry is dealing with a range of complex questions about our financial system and regulatory settings. It’s around two decades since the Wallis Inquiry last took a wide-ranging look at the financial sector and there are plenty of issues to address.

But none is more important than the issue that triggered the call for the Murray Inquiry in the first place – competition in banking.

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From the point of view of the customer owned banking sector – credit unions, mutual banks and building societies – a focus on real competition and choice, and the issues that matter to everyday consumers, is critical to the Inquiry’s success.

In too many areas of financial regulation approaches are set without addressing the elephant in the room – or to be more precise, the four elephants representing our four major banks.

Post the GFC Australia has one of the most concentrated retail banking markets in the world. Our biggest banks benefit from a system that lowers their funding cost and capital requirements without asking for a fair contribution – effectively, a subsidy that taxpayers underwrite. This is not an environment that supports competition and choice for consumers.

For the Murray Inquiry to be meaningful to consumers, and to deliver on the demands of competition and fairer regulation, this underlying unfair advantage must be dissected and addressed.

This is an issue for all of us. The customer owned banking sector has more than four million customers, and without us, Australia’s financial system would be far less competitive and diverse, with less real choice for consumers.

The public agree with us:

  • 77% agree the big four have an unfair advantage;
  • 69% say there needs to be more competition;
  • 82% see it as important to look at whether regulation promotes or limits competition;
  • 70% say the big four needs stronger regulation and believe regulation should not be one size fits all.

Australian banking customers will suffer if the financial system delivers unfairly for the big against the small, and imposes a one size fits all regime.

In our submission we are calling for:

  • The big four to pay for the taxpayer funded subsidy they receive;
  • Better consumer information so Australians make informed banking choices;
  • A banking regulator more focused on fostering competition;
  • Recognition of the customer owned banking model.

This Financial System Inquiry is complex, but at the moment it is flying under the radar for most consumers. But it matters, and its outcome is important.

Louise Petschler is the chief executive officer of the Customer Owned Banking Association.


Australians deserve a competitive and fair banking system – one that promotes diversity and choice as well as being safe and stable. The Financial System Inquiry is a rare opportunity to put consumer interests first and deliver a fairer system for the future. A campaign to raise the profile of these issues has been launched by COBA. More information can be found at www.balancebanking.com.au.


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One thought on “Financial System Inquiry – Too Big to Ignore


    The competitive position of the major banks will remain unassailable while ever they are able to swap ‘interest free deposits’ for ‘free transactions’. The Reserve Bank reports that deposits in transaction accounts, on which banks pay essentially ‘no interest’, run to some $900 billion. Invested by banks, at market rates of interest, these deposits return some $35 billion in earnings — some of which is used to subsidize under-priced banking services and transactions — and some of which is used to compete unfairly with any intruders (like the new foreign banks in the 1980s)

    Ideally, all bank depositors would (like pensioners) be deemed to be receiving taxable interest income on these deposits to offset the unfair situation where the tax-free bartering of services for interest not paid entails substantial tax avoidance: the banks do not deserve an annual subsidy of some $10 billion to underwrite their dominance.

    As well, banks charging of merchants a (hidden) % of credit card sales, as interchange and other fees, should be proscribed by regulation.

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