Interview with Kieran Gilbert
SKY News Channel
13 December 2010
SUBJECTS: Competitive and Sustainable Banking Package
GILBERT:
Acting Prime Minister and Treasurer, Wayne Swan, thanks for your time this morning.
TREASURER:
Good morning, great to be here.
GILBERT:
You've had some positive reaction to your plan, but the Bank of Queensland says it's not a copper bullet, let alone a silver bullet, and isn't it the case that a lot of smaller non-bank lenders rely just as much on exit fees as the big banks do?
TREASURER:
Well, there is so much of this package which is there to assist the smaller lenders, the credit unions, the building societies and of course the smaller regional banks. Mr Liddy's views are isolated. There are others in that sector that are strongly supporting this package. They understand the importance of the investment that we are making in RMBS, and also securing the flow of further private investment into that important funding source. They understand the importance of the measures overall to empower consumers, and they also support the abolition of these very unfair mortgage exit fees which lock people into deals and they don't then have the capacity to walk down the road and get a better deal.
So I think the great bulk of the sector is strongly supportive of all these measures which will strengthen competition, give people the capacity to walk down the road and get a better deal, but they're also supportive of the other measures that we're putting in place to secure the flow of finance including covered bonds, I know Mr Liddy doesn't support those either, but many in the sector do because they understand the importance of a measured and balanced package.
GILBERT:
But isn't it true that the smaller non-bank lenders can offer the lower mortgage because they recoup the fee, or they recoup through the exit fee at the end, the money. Is it because – don't they rely on that just as much?
TREASURER:
If your business model is dependent upon an exit fee, let's say as high as $7,000, which Mr Hockey seems to think is okay, but I don't think that's a sustainable business model. The fact is if we're going to increase competition in this vital sector to improve the lives of people with mortgages and small business we've got to rip down the barriers that stop that competition, and unfair mortgage exit fees as high as $7,000 do that. You can't have a competitive sector when you've got those unfair arrangements in place.
To be fair to two of the bigger banks, they've knocked off their mortgage exit fees and that's a good thing, and many other smaller lenders have in recent times also got rid of their mortgage exit fees. So I think that view, whilst it is shared by some, is not the dominant view out there which understands how important this reform is.
GILBERT:
The Bankers Association says the big banks, you know, the two banks you referred to aside of this because they've already scrapped the fees, but the ABA says that banks might be forced to raise rates or recoup their costs through higher establishment fees due to the scrapping of exit fees.
TREASURER:
Well, that is the sort of arrogance we have come to expect from some of the bigger banks, but you're right, two of the bigger banks have got rid of their mortgage exit fees and I congratulate them on doing that and doing that some time ago, because some time ago we put in place a crack down on mortgage exit fees for existing loans. That crack down which has been administered by ASIC is something that's very important as we go forward to make sure that people are not paying fees which are disproportionate to the costs incurred by the bank.
GILBERT:
Issuing a personal account number which you referred to yesterday, you're going to have Bernie Fraser look at this, reporting back by June, as I understand it. How likely is a portable account number, how likely is it to work?
TREASURER:
Well, hopefully Bernie Fraser can tell us how likely that can be. Whether it is technologically possible – that's a very important point. See, no other banking system in the world currently has full portability, but we think it's important to have a good hard look at how possible it is. So take mobile phone portability of numbers – that took 15 years to come in. Australians have that now.
GILBERT:
So you're not expecting this to be done in a year or two, this will take a decade or more?
TREASURER:
I think it's worth a good hard look. We need Mr Fraser to work closely with the Reserve Bank and the payments board of the Reserve Bank, that's a very important part of this. We do need to have a good hard look at it. I'm very keen on securing this if it's possible in a technological sense, if it's feasible, but we need to know the answer to that and we don't know it now and it's not something you can just come to and say you'll do overnight.
GILBERT:
Well, the Greens want the scrapping of ATM fees to be included as part of this package, are you open to that?
TREASURER:
Well, they ought to be careful what they wish for when they make that claim. You see, we've got this issue that's emerged recently about the costs of using ATMs in indigenous communities. One of the problems here is if they scrap the fees they might also lose the service. So we've got to come to this from a methodical, evidence based approach and sometimes the simple solutions don't work.
There's already been very significant reforms to ATM fees. Something like two thirds of transactions are fee free right now as a result of Reserve Bank reforms that have taken place over the past 18 months, but I'm certainly open to doing more in this area if it works. If it delivers fair value and fair service to consumers.
GILBERT:
On the issue of price signalling, isn't there the risk that if the ACCC is tasked with cracking down on this that the banks will say – okay we won't try and explain the reasons for our rate rise.
TREASURER:
No –
GILBERT:
Or the merits of a rate rise?
TREASURER:
No there is no risk of that, The ACCC have advised me that they have seen evidence of price signalling which has led to a lessening of competition. Now, this is a very, very serious matter. They've advised me they need some change to the laws to put in place their capacity to crack down on price signalling. That's what we're doing, but we will do it through draft legislation of which there will be consultation with the industry. But the industry should be absolutely certain that the Government is determined to crack down on uncompetitive behaviour in this area.
GILBERT:
If you wanted a fifth or even a sixth pillar in this industry, in this sector. Do you agree with many commentators now including the former ACCC boss Allan Fels, that the approval of the Westpac/St George merger was a mistake?
TREASURER:
I don't believe it was a mistake. It was something that I did with the advice from our regulators and I did it in circumstances vastly different than what we see today.
GILBERT:
So the decision would have been different if it was made today?
TREASURER:
No it was done in circumstances vastly different from today and I think on the advice of our regulators because of the circumstances of the time. But we are absolutely determined to support the smaller lenders, to support the credit unions, the building societies and the regional banks. And that is why there is a range of initiatives in here which do precisely that and today much of the commentary is supportive of those measures.
GILBERT:
But you would not have approved that merger if that decision was made today?
TREASURER:
I'm not going back to a period of a couple of years ago. The most important thing now is there is stability in our financial system as a consequence of the Government putting in place the bank guarantees, the deposit guarantee, the wholesale funding guarantee. As a result of the Government putting in place, for example, in June 2008, the financial claims scheme – something the previous government couldn't do in 12 years. As a result of us also on top of that putting in place our investment in residential mortgage backed securities, all of these things have stabilised the system in an uncertain global environment. We in this country can begin talking and implementing policies to promote greater competition whereas in other countries they're still talking about the survivability of their financial system.
GILBERT:
Acting Prime Minister I just want to ask you about one last area in this field and that's the inquiry that starts today: the Senate Committee Inquiry. The banks are due to appear over the next few days – NAB today. Are you open to any suggestions or improvements that this Senate inquiry might come up with?
TREASURER:
Look, I always keep an open mind on these matters. We've put in place over three years, a range of fundamental reforms to stabilise the system first. Then to increase competition, a further wave of reforms in this package, and I've always got a keen eye on doing anything we can to improve the competitive outlook.
GILBERT:
And improve this current package, this reform (inaudible)?
TREASURER:
No, to improve the competitive outlook. The most important thing here is you have to be methodical in the way in which you go about this. The Government has worked methodically, particularly in consultation with our regulators and with the industry to produce this package but as always –
GILBERT:
Are you happy to change the package if the inquiry says one thing or another?
TREASURER:
No, I'm bringing down a package of reforms that are important, if there are other good ideas around we will consider them on their merits at the time.
GILBERT:
We haven't heard from the CEOs for a while and a few of them are going to appear. What are you expecting to hear from them?
TREASURER:
Oh, I'll be listening to what they've got to say. I don't have any particular expectations about what they will say, but what I would expect from them is a responsible approach to ensuring that we have competition which is in the national interest.
GILBERT:
Acting Prime Minister, thanks for your time.
TREASURER:
Thank you.
