NEW REPORT OUT NOW
In 1990 treasurer Paul Keating asked the Parliamentary Committee I chaired to write a five-year report card on the deregulation of our financial sector.
The terms of reference covered the importance of the banking system to the Australian economy; the profitability of the banking sector through time and in comparison with other industries; the effectiveness of competition in the banking sector, including the impact of any barriers to competition; and the benefits of competition to different sections of the community including access to financial services; product innovation; choice and quality of financial services; and information to users.
I suppose then it is unsurprising that these issues again were a significant element in Murray's report.
The Parliamentary Committee inquiry considered the critically important issue of competition from several angles. These included the profitability of banks, impediments to competition such as access to the payment system, and conflicts of interest arising because of the funds management role played by banks.
Like Murray, it concluded the financial system was essentially strong, and it underpinned the economic fortune of Australia. Australian banks were and are profitable, and recent results have clearly demonstrated this to be so.
How credit unions, building societies and other deposit-taking institutions, including foreign banks, might increase competition was considered. My inquiry recommended that the limitation on the number of foreign banks be removed, subject to the right prudential supervisory arrangements being put in place.
There will always an argument as to whether the number of players in a market provides a true measure of competition or whether rebadging smaller players that have been acquired simply presents an illusion that competition exists. These are continuing issues that Murray will need to address in finalising his report.
Professor the Hon. Stephen Martin
Chief Executive, CEDA
Professor the Hon. Stephen Martin has had a long and distinguished background in the Australian Parliament, academia and the private sector.
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