Monday, December 13, 2010

Swan's symbol. Should the banks be scared?


YES - Gottliebsen

NO - Colebatch


WHATS IN IT

Ban on exit fees (for new mortgages)

Inquiry into account number portability

Mutuals fast-tracked to become banks

Deposit guarantee extended indefi nitely

Government Protected Deposits logo

Standard facts sheet for mortgage offers

Prosecutions for price signalling

Government to fund $4 billion more mortgages, Covered bonds, bullet mortgage securities


WHATS NOT

Outright ban on mortgage exit fees

Tracker mortgages with fi xed margins

Limits on how much banks can charge

Australia Post competing as a bank

New financial system inquiry

Bank super profits tax


An inquiry to be headed by former Reserve Bank chief Bernie Fraser heads a package of government measures aimied at taking on the the big four banks, already derided by one of their competitors as "not a silver bullet, not even a copper bullet".

Treasurer Wayne Swan has promised to outlaw mortgage exit fees, but not until next July and only for mortgages issued from that time on.

"There is absolutely no justification whatsoever for exit fees of up to $7000," he told a Sunday parliament house press conference.

"If people are unhappy with their institution and want to walk, at that price they will never afford to."

But the Treasurer balked at abolishing such fees... saying he had received legal advice that altering existing contracts without compensation would be unconstitutional.

He also resisted requiring banks to offer "tracker mortgages" that moved in line with indicator rates, limiting the extent to which banks could move lift rates independently of the Reserve Bank, empowering Australia Post to act as a bank, and imposing a super profits tax on excess bank earnings.

Instead, arguing there was "no silver bullet" he has placed his faith in measures that will make it easier for customers to switch institutions asking former Reserve Bank governor Bernie Fraser to inquire into full account number portability and requiring banks to offer mortgage customers information in a standard format.

"We are going to give this a go. Account number portability does not exist anywhere else in the world at this point in time. It took 15 years to get mobile phone number portability in Australia in what was a new and young and dynamic market," he said.

"I am not raising expectations, but it is worth a go."

Portable bank account numbers would mean that payroll destinations and automatic payments need not change when someone switches institutions. Mr Swan will investigate setting up a central government repository to hold all mortgages so that refinancing would not require a change of mortgage or a new mortgage insurance fee.

Labeling transferability "the Holy Grail of bank reforms" independent Senator Nick Xenophon said if it worked it could make changing banks as easy as changing power companies. He rejected claims by some banks that it could take a decade saying it "only took eight years to put a man on the moon".

Mr Swan also held out the prospect of more than doubling the number of Australian banks saying he would quickly approve applications by credit unions and building societies to rebadge themselves banks and that there were around 25 that already qualified.

He will promote the small lenders with an advertising campaign entitled "Bank on a
Better Deal," and allow them and the banks to use a new orange and grey logo reading "Government Protected Deposit".

Almost all deposits will now be protected in perpetuity. Mr Swan said the existing scheme which protects deposits of up to $1 million would be made ongoing when it expired late next year, although there was a possibility the threshold could be altered.

An intended beneficiary, Bank of Queensland chief David Liddy said the changes did little for samll lenders and could "put this idea of a fifth pillar back about 15 years."

“Not only is there no siliver bullet but he hasn’t even given us a copper bullet,” he told The Age/Herald.

Mr Swan will direct Treasury to spend an extra $4 billion buying mortgage-backed securities, taking its total holdings to $20 billion.

Mr Liddy said he was hoping for more. The market remained stalled.

In a statement the ANZ Bank said it had not been consulted Mr Swan and pointed to the "difficulties a lack of consultation created in the mining industry".

Other measures are wins for the big banks as well as their competitors. Treasury will encourage the development of "covered bonds" where repackaged and onsold mortgages remain on the lenders balance sheet and "bullet mortgage backed securities" designed to pay interest and then principal in a way that is attractive to investors in bonds.

Shadow Treasurer Joe Hockey gave Mr Swan "3 out of 10," saying he had stolen 3 ideas from him and had shied away from others such as banning mortgage exit fees outright.

Published in today's SMH and Age


Mortgage Key Facts Sheet


Competitive and Sustainable Banking


Related Posts

. Wednesday column: Swan's second chance

. Swan's plan: Counterbalancing banks

. Reserve calls banks bluff