A day after the government announced its proposed reforms to the financial system, Reserve Bank governor Glenn Stevens warned that the government should be careful in its attempts to promote competition in the banking sector.

Mr. Stevens gave his advice this morning during a Senate hearing that seeks to revitalize the participation of small lenders in the banking sector.

Noting a more competitive banking environment now than in the 1990s, Mr. Stevens said, "Borrowers have access to a larger range of products than they once did and the overall availability of financing to purchase housing seems to be adequate."

Mr. Stevens, however, acknowledged that the resulting increase in financial risk brought by the global financial crisis posed great challenges for banks to secure funds for lending. This in the end caused the changes in the earlier established competitive scenario.

Generally in agreement with the reforms suggested by the government, Mr. Stevens raised some concern saying, "There can be and there usually are, from most policy interventions, unintended consequences down the track and we should be quite careful how we assess these things."

Mr. Stevens noted, "It seems the taxpayer is being asked to shoulder more risk through one way or another in order to facilitate the provision of private finance."

Referring particularly to the government proposal to ban exit fees for new home loans from 1 July 2011, Mr. Stevens actually recognizes legitimacy in the costs charged by banks in closing down a mortgage saying that, "The difficulty really is, of course, that there are actual costs to the lender in both establishing and terminating the loan that they're going to feel they need to cover." He is in fact unsure how much fees impact market competitiveness.