Australia’s long-standing policy to prevent mergers of the big four banks is ‘‘redundant’’ and the sector needs a new champion to promote competition, the Productivity Commission says.
The commission has released a wide-ranging draft report into financial sector competition, following a request by Treasurer Scott Morrison.
It found no government agency was specifically tasked with overseeing and promoting such competition and questioned the roles of the Reserve Bank of Australia, Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
‘‘Under current regulatory architecture, promoting competition requires a serious rethink about how the RBA, APRA and ASIC consider competition and whether the Australian Competition and Consumer Commission is well placed to do more than it currently can for competition in the financial system,’’ the report said.
The commission also found the ‘‘Four Pillars’’ policy, first articulated in the 1990s as a way to maintain the separation of the big four banks to ensure competition, was no longer effective and may have done more harm than good.
‘‘The Four Pillars policy is a redundant convention,’’ the report said.
‘‘It is also not clear that the Four Pillars policy has met its stated objective of preserving competition, or whether instead it has eroded competition by embedding a fixed market structure.’’
Meanwhile, the commission said a regulatory clamp-down last year on the interest-only home loan applications for investors may have actually benefited the banks.
It argues the action by APRA resulted in higher interest rates on new and existing investment loans.
‘‘Up to half of the increase in lenders’ profit was in effect paid for by taxpayers, as interest on investment loans is tax deductible,’’ the report said.
It estimated the cost borne by taxpayers at up to $500million a year.
The draft report comes ahead of the start this week of a royal commission into the financial sector.
It warns the big four banks have substantial market power and the ability to pass on cost increases and set prices to maintain high profits — without losing market share.
Meanwhile, one-in-two people still bank with their first bank, because it’s ‘‘too much hassle’’ to change or they just want to keep their accounts at the one bank.
The commission also recommended the development of an online tool, using monthly data from mortgage lenders, to allow consumers to select different combinations of loans and show the specific fees that would affect the total cost.
‘‘We have recommended a 21st century disclosure regime that leverages the benefit of consumer digital data to make actual real-world prices openly available to the consumer public,’’ Productivity Commission chairman Peter Harris said.
The commission’s inquiries continue ahead of it handing a final report to the government in July.