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Connexus : Issue 41
maintaining the status quo and not tinkering with the financial system. Choice’s McNess concedes that the regulator y framework did ser ve the nation well during the crisis and adds that Australian financial institutions, on the whole, did not fall into the trap of offering the sort of high-risk mortgage products that were endemic in the US. “ That is something for which we should all be gratef ul,” she says. “ But just because ever ybody else did ver y, ver y badly doesn’t mean that we can agree that nothing else needs changing.” As one of the Wallis report team members, Harper says that he and his colleagues felt that it would be appropriate to conduct another review after a decade to reflect market changes. With that per iod now stretching to 15 year s and including the GFC, he says the time is right. “ Yes, we’ve got the aftermath of a major financial collapse and our regulator y system did well, but it hasn’t been rev iewed since the collapse. At the ver y least you want to go back and see what worked and what didn’t work.” Reflecting on many years in financial markets, Harper says while a stable financial system is desirable, other factor s should come into the mix. “Everybody wants to be stable and that’s not a bad thing in principle. But we need to think more carefully and actually investigate precisely what the cost is, or likely to be, in ter ms of competition and efficiency. Because that cost will creep up on us.” Petschler agrees that post-GFC is “the right backdrop” to r eview Australia’s capacity to deliver competition for consumers over the next 20 year s. “In simple terms, a wide-ranging inquiry like Wallis will improve competition and choice for consumer s and safeguard Australia’s banking sector for the future.” She also disagrees with the assumption that more banking competition will inevitably lead to greater instability in financial markets. In the absence of genuine competition, Petschler has little doubt that there will be less price tension around banking products as the major institutions consolidate their market share, leading over time to higher charges for Australians doing their banking. “ We should not rest on our laurels if we want to safeguard Australia’s financial system from the next global economic challenge, which histor y shows will come again,” Petschler says. Davis acknowledges that some critics may argue it is better not to change a system that has not failed. “But I guess a better way to phrase the questions is: It mightn’t be broken, but could it work better? And it may not be broken now, but might it be at risk of breaking down in the future? That’s where it’s well worth at least having a review that would enable one to answer those couple of questions.” Cameron Cooper is a freelance writer. Consumer rights watchdog Choice fears the public will be one of the big losers unless Australia’s financial system receives an overhaul. As part of its ongoing Better Banking campaign, Choice has been championing more flexible and responsive banking in Australia in an effort to promote genuine competition between major players in the banking sector. Policy advisor Elizabeth McNess says the Choice initiative has contributed to a number of recent wins for consumers such as the banning of mortgage exit fees, the implementation of a permanent consumer deposit guarantee which now applies across all authorised deposit-taking institutions (ADIs) in Australia, and the introduction of rules enabling easier switching of bank accounts. Now the fight must be extended, according to McNess, who contends that the too-big-too-fail philosophy protecting major banks is harming the banking system and consumers. “I think fundamentally that is not in consumers’ interests,” she says. “So looking at what is needed to ensure we don’t have that is actually a fundamental consumer issue in a new independent inquiry,” McNess says. Public deserves choice [The financial system] mightn’t be broken, but could it work better? And it may not be broken now, but might it be at risk of breaking down in the future? Professor kevin davis, research director, The Australian Centre for Financial Studies and Professor of Finance at the University of Melbourne. CoverStory 38 Connexus