Australia's banks have gained near unrivaled dominance over the financial system, accounting for almost $90 of each $100 lent - an all-time high.
The market-share figures for May, covering personal loans, housing loans, commercial loans and lease finance come as Finance Minister Lindsay Tanner lends support to a new financial system inquiry.
Addressing international regulators in Sydney Mr Tanner said the pace of financial innovation had now "outstripped the capacity" of regulators to keep up.
"The world has changed beyond recognition," he told the conference. "Whether we’re talking about the United States or Australia, we need a regulatory regime that’s appropriate for 2010 and beyond, not one that simply reinvents the past"...
Australia's last inquiry into the financial system in 1996 and 1997 took place at a time when competitors to the banks had a large and growing share of the market.
The May figures show the share of new loans issued by building societies, credit unions, wholesale lenders and finance companies falling to a record low 10.6 per cent, down from 15 per cent a year ago.
The banks' share was a record 89.4 per cent, up from 85 per cent. The banks' share of new mortgages climbed from 90 per cent to 92 per cent and their share of motor vehicle and other lease finance jumped from 35 per cent to 45 per cent.
Former Competition and Consumer Commissioner Stephen King said there was now a real question as to the degree to which the big four banks "were keeping each other honest and were kept honest by facing competition."
"These figures show the smaller players are becoming less relevant as a constraint on the banks. We have a straight out competition problem. The last 18 months have reversed a 20-year trend for the banks to face more competition," he said.
Professor King is one of the six public policy economists who last week petitioned Treasurer Wayne Swan asking for a new inquiry into Australia's financial system.
"The last financial system inquiry was carried out against a background of the banks facing increasing constraints on their behaviour from emerging competitors, and that has turned around - a 180 degree change," he said.
What the people who say we don't need an inquiry are ignoring is that the rest of the world is changing. In the UK and other countries the old rule book is being thrown out. We can't act as if we are an island."
Australia's Financial Services Minister Chris Bowen Sunday opened the door to a new financial system inquiry saying he "would not rule out" such a review "at the appropriate time".
Treasurer Wayne Swan is understood to also be open to the idea of an inquiry after the dust has settled on the current financial crisis.
Mr Tanner said Australia’s regulators had been vigilant in overseeing Australia's financial sector but that it was clear that a new international rules were needed. "We cannot simply restore past regulation, as appealing as it may be to some," he added.
New lending for housing hit a record high in May with the figures showing a sharp jump in borrowing to buy investment properties, suggesting that more investors are "positively gearing" to take advantage of high rents and low interest rates
Published in today's SMH and Age
Here's Tanner's full speech.