Mr BUCHHOLZ (Wright) (9.52 pm)— We have heard many calls for greater regulation of banks, but I am not convinced that it is quite so simple. We should be careful in proposing increased regulation of the banking sector because we cannot be certain what the outcomes might be. The Greens claim that greater regulation will improve the banking sector. I am not so sure. The Greens- Labor government coalition does not understand the difference between facilitating competition through improving the operations of markets and stifling the operation of markets through interfering in commercial decisions.
In basic terms there are 12 Australianowned banks: the four big ones and eight much smaller. Thanks to the intelligent regulation and hard work of previous governments the big four are world-class banks. But we can do better. We are in an extended period of financial instability and this is exacerbated by two main factors: the first is the lack of prudential oversight of many international institutions, and the second is the incompetence and reckless spending of the current Greens-Labor government. The banks are businesses which provide a service for a fee and answer first and foremost to their shareholders. But not all Australian banks have the size and the reach which would protect them from movements in cost and prices. The smaller banks are price takers, not price setters. These are wellregulated banks which are trying to survive
in a very competitive market. We need to be very careful that, in reacting to the business practices of the four majors, we do not end up disadvantaging smaller Australian institutions. In the past two years we have lost significant players in the home mortgage market. Before we legislate for greater regulation we need a general inquiry into the financial services system, and that means all of the sectors. So rather than add yet another layer of regulation to a business sector that is already heavily regulated, we need to better understand the issues. We need to target anticompetitive practices by giving the ACCC relevant powers to investigate anticompetitive price signalling. We need to level the playing field so that the big four cannot dominate the smaller institutions as easily as they do today. Most importantly, for the small business and home loans market, we need to ensure that the smaller institutions are not unfairly squeezed out of the market through compliance costs and dealing with government regulations.
Before coming to this place, early in my working career I was employed by the banking sector so I speak with some authority on this very issue. I was employed in the agrifinance sector lending to both the rural and commercial retail markets. I note that clients that traditionally would have been granted a relatively ‘low risk rating’ today are struggling to secure basic finance requirements for their ongoing commercialism. Their business strategies have not changed; their debt-to-equity ratios have not changed. However, hardworking business persons and farmers are finding it increasingly difficult to secure funding for day-to-day operations. Quite simply, the banks have raised the bar on their lending guidelines. It would appear that the raising of the bar is associated with the lessoning of competition as a result of the larger banks’ mergers and acquisitions strategies.
I am not saying for one minute that we regulate the market. However, I do want to speak to the point of the free market independence of the banks, in particular of the four majors, and remind them that, when commentators speak of the independence of the banks, they operate in an environment of the security of the four-pillar banking system— hardly open market conditions. Further, when the dark clouds of the GFC loomed the four majors sought the shroud of security from the government, options that were not available to the whole of the market. When the sun came out they quickly returned to a position of so-called independence, moving quickly to shift variable rates in excess of the increased cash rates set by the Reserve Bank.
Our banks are not operating in a fully competitive market. We need more players in the marketplace to enhance competition, which has been the position of the opposition for some time. The banks are winding the heat up on their clients—the mums and dads who are mortgage holders and business owners in my electorate—by way of increased rates on overdraft limits and business loans, and I have a list as long as my arm of developers who are finding it increasingly difficult to conduct their businesses. Much of the international competition in Australian financial services has gone. St George Bank and the independent Bankwest have gone. This is why we need a targeted inquiry. We need to have good evidence before we act. My final point is that there is one big step that the government could take to take upward pressure off interest rates—that is, to cut back on their debt-fuelled and wasteful spending. This government stubbornly refuses to accelerate its deficit reduction program because of its addiction to spending. This is a government that will not take direct action to help the home buyers and small businesses of my electorate and the people of Australia.