Banking system in transition: Treasury

8 Aug 2012, 2:29 pm   -   Source: AAP
Senior Treasury official Jim Murphy has told a senate enquiry the banking system is in transition. (AAP)

Senior Treasury official Jim Murphy has told a senate enquiry the banking system is in transition. (AAP)

A three-day Senate inquiry into Australia's banking system in the aftermath of the global financial crisis has kicked off in Canberra.

A senior Treasury official says Australia's banking system is going through a transition period in the aftermath of the 2008-2009 global financial crisis (GFC).

Treasury executive director of markets group Jim Murphy told a Senate inquiry into the post-GFC banking environment that Australia's banks had proved to be resilient during the crisis, unlike many other countries, with none of its financial institutions needing to be bailed out.

He said the system was now in a period of transition because of the considerable international work done to set rules around bank capital and liquidity and governments seeking to diversify funding sources by opening up corporate bonds markets.

"A lot of people seem to ignore the fact that we are in this transition period and they are looking back pre-GFC, and in my view we are not going to return to a pre-GFC model for the financial system," Mr Murphy told the inquiry in Canberra on Wednesday.

"We are actually repositioning our financial system, which is strong and resilient, and proved, from what we hear from other countries' officials, as one of the models for the rest of the world."

Mr Murphy believes Australia's banking market is competitive with some 115 service providers offering 30,000 different mortgage products.

It was a profitable market and that always would lure new entrants trying to get a share of earnings.

The suite of federal reforms, including banning exits fees, better disclosure of mortgage products and the ability to switch banks more easily, was "biting".

Treasury's acting general manager of its financial system division Ian Beckett told the hearing that since the banking package was announced in late 2010 the major banks had lost an estimated $16.6 billion in home lending business to the smaller banks, which had grown their mortgage lending at twice the rate of the majors.

"So we're providing consumers with the tools to get the best deal," Mr Beckett said, adding that at the same time the government was providing better access to wholesale funding.

The hearing was told that on average, funding costs for Australian banks in offshore wholesale markets had increased by 140 basis points on what had been the norm before the GFC.

The risk premiums were there despite well regulated Australia's banks being some of the most profitable in the world and in the top ten in terms of their credit ratings.

Mr Murphy said international markets, which set the level of funding costs, are not that discerning.

"The international market views a bank as a bank," he said.

"I think what you find in the markets now is that there is a greater risk in investing in a bank, whatever bank it is."

He said Australia's banks have increased their deposits to try and temper the need for overseas funding, particularly while Europe lurches from one crisis to another.

"I think it is internationally acknowledged that Australia is a very sound financial system," Mr Murphy said.

"Whether we get the benefit of that in terms of funding costs, I don't think we do."

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