The Australian Bankers’ Association (ABA) welcomed the finding in the report that competition is the best means of protecting consumers’ interests, in preference to further layers of regulation.

The ABA was today commenting on the release of the report “Competition within the Australian banking sector” which is the result of the inquiry by the Senate Economics References Committee.

Following are some of the key recommendations, made after top banks posted record profits and steep mortgage rate rises, infuriating much of Australia's public and political establishment.

* The Reserve Bank of Australia should accept as eligible paper for repurchase agreements long term debt issued by any authorised deposit-taking institution rather than just those rated above A.

* The Australian Office of Financial Management programme be expanded to include asset-backed securities based on assets other than home mortgages and to include securities rated AA or A (rather than just AAA) or issued by a financial intermediary supervised by the Australian Prudential Regulation Authority.

* The AOFM should be given the discretion to purchase residential mortgage-backed securities issued by entities with a substantial bank shareholding where it judges this would promote a more competitive market.

* The Treasury should develop a plan to introduce a support programme for RMBS similar to that operating in Canada in case a future deterioration in the securitisation market requires its introduction.

* The government should immediately standardise the fee for all borrowers under the wholesale funding guarantee to a uniform rate of 70 basis points.

* The government should reconsider its decision to ban all mortgage exit fees to allow enough time for the current ban on unfair and unconscionable exit fees to take effect. If it proceeds with the comprehensive ban, it should only apply to authorised deposit-taking institutions. It also recommended that the government should more closely regulate mortgage exit fees.

* Banks which securitise a loan portfolio should be required to keep a proportion of the resultant asset-backed securities on its balance sheet and hold appropriate levels of capital.

* The interest withholding tax should be abolished as budgetary circumstances permit to increase the ability of foreign banks to compete in the Australian market.

* The government should require the Treasury to review the abolition of the LIBOR cap to the tax deductibility of interest paid by a foreign bank branch on borrowings from its parent bank.

* If a customer has left for a new bank, banks should be required to re-route all direct debits and credits for 13 months and provide the new bank with details of those direct debits and credits.

* The RBA and the RPRA should regularly publish information about the total cost of home loans. The RBA should also publish regular information on banks' interest margins and returns on equity; compare these to returns in other industries to allow an assessment of whether risk-adjusted returns in the bank sector are sufficiently high to suggest that competition is inadequate.

Steven Münchenberg, Chief Executive of the ABA, said: “The ABA strongly supports the initiatives and recommendations to reduce the barriers of entry for new entrants into the financial services markets and strengthening the role of smaller and international banks.”

“We recognise these new initiatives build on proposals introduced by the Federal Government in December 2010 when it announced its competition package.”

The ABA supports, in principle, initiatives which are aimed at increasing transparency in banking products for consumers.

“Details are important, however, and care needs to be taken not to duplicate existing requirements. It is also important that new requirements are practical and workable for banks and their customers,” Mr Münchenberg said.

The main recommendation of the report is for a more broad ranging inquiry into the financial system – similar to the 1979 Campbell Inquiry and the 1997 Wallis Inquiry.

Mr Münchenberg said: “There may be some merit in such an inquiry, but it would be premature to conduct one until new international banking regulations, such as Basel III, are implemented and their impact properly understood.”

The ABA notes that there is a recommendation for a small business code on lending.

“The current Code of Banking Practice already applies to small businesses and the ABA is always willing to meet with small businesses and their representative organisations to discuss any improvements.”

IBTimes with Reuters