A Competitive and Sustainable Banking System

Today the Gillard Government is announcing it will take further action to promote a competitive and sustainable banking system to give every Australian a fairer go.

We're introducing three broad streams of reform to empower consumers to get a better deal, to help smaller lenders put more competitive pressure on the big banks, and to secure our financial system so it can continue to provide a sustainable flow of credit to households and businesses.

We've worked carefully and methodically with our financial regulators to develop a package of reforms that will be effective and enduring, and won't let the big banks off the hook.

There's no silver bullet here – the challenges flowing from the global financial crisis can't be solved overnight – but we'll keep working hard to give all Australians a fighting chance.

Vigorous competition is the best way to keep interest rates for borrowers lower over time and create a system that offers real choice.

To empower consumers to get a better deal, we will:

Ban exit fees outright on new home loans from 1 July 2011
Boost consumer flexibility to transfer deposits and mortgages
Introduce a mandatory key fact sheet for new home loan customers
Empower the ACCC to prosecute anti-competitive price signalling
Fast-track legislation to get a better deal for Australians with credit cards
Launch a national community awareness campaign to empower consumers in banking
Set up a taskforce with the Reserve Bank of Australia to enhance ATM competition reforms

To support smaller lenders so they can put more competitive pressure on the big banks, we will:

Build a new pillar in the banking system based on the combined competitive power of our mutual credit unions and building societies
Confirm the Financial Claims Scheme as a permanent feature of our financial system, to secure critical deposit funding for smaller lenders
Introduce a further $4 billion investment to support the Residential Mortgage Backed Securities market which many of our smaller lenders rely on to make cheaper loans
Accelerate the development of a 'bullet bond' structure for RMBS issuance to strengthen and diversify RMBS funding for smaller lenders

To secure the long-term safety and sustainability of our financial system, we will:

Allow all banks, credit unions and building societies to issue covered bonds to broaden access to cheaper, more stable and longer-term funding, and harness our national superannuation savings to domestically fund more productive investment in our economy
Develop a deep and liquid corporate bond market by launching the trading of Commonwealth Government Securities on a securities exchange, to reduce our reliance on offshore wholesale funding markets

These reforms build on the Government's decisive action during the global financial crisis to secure our financial system and preserve the competitive foundations of Australia's banking sector.

The Gillard Government has worked hard to help smaller lenders compete with the big banks by supporting their access to vital funding sources including our deposit and wholesale funding guarantees and our $16 billion investment in AAA-rated RMBS.

We've also introduced tough new laws to crack down on unfair mortgage exit fees – to ensure that customers can walk down the road and get a better deal. Together with our measures making it easier for customers to switch their deposit accounts, this critical reform has been part of our broad agenda to promote choice for consumers.

A competitive and sustainable banking system is central to the Gillard Government's broad economic agenda, and continues our record of strong and responsible economic management.

The Competitive and Sustainable Banking System package is available at http://www.treasury.gov.au/banking.

12 December 2010