The Murray review is the first serious look at the state of the nation's financial system since 1997.
The former head of the Commonwealth Bank and head of the Future Fund, David Murray, has made 44 recommendations.
They range from increasing the amount of money banks hold in reserve, to changes to the way the superannuation industry works.
The review has found that Australia's financial system generally performs well, but superannuation fees are too high and the risk of a big bank collapsing has not been adequately planned for.
The report calls for an increase in capital requirements for the big four Australian banks.
It recommends that up to 20 billion dollars to be held in reserve to protect the economy and consumers in case of another financial crisis leading to a banking collapse.
David Murray says Australia needs to have a high quality financial system because it relies too heavily on the savings of overseas investors to augment its own savings for economic development and growth.
"For this reason, we want not only a high quality financial system but one in which in the event of a crisis which ultimately will happen again, we want the taxpayers off the hook as far as we can see. Remember, the cost of a crisis assessed by the Basil committee in an average circumstance is about 63% of GDP or a trillion annually in Australia and the cost of a more severe crisis, about 158% of GDP or 2.4 trillion annually. Even a modest crisis would cost 900,000 jobs."
The big banks say that holding extra capital would be damaging and would result in higher interest rates for customers.
Treasurer Joe Hockey says the recommendations seek to improve efficiency, resilience and fair treatment in the system.
"I want to emphasise that the financial system is vitally important to boosting productivity and growth in the Australian economy. It provides funding forbore others, investment opportunities for savers and facilitates risk management. The financial and insurance services sector is the largest industry in the Australian
Stephen Munchenberg from the Australian Bankers Association says the system is already very effective.
"We stand by our current levels of capital. No taxpayers money was used to support the banks through the financial crisis. In fact the support we got from taxpayers we paid for. The taxpayer has earned $5 billion out of the banks since the financial crisis for that support, unlike other countries. We do recognise the risks, and it is absolutely appropriate that we look at what can be done to mitigate those risks to make sure that taxpayers aren't on the hook,” he said.
The review calls for a clamp down on borrowing by superannuation funds because of the risk to taxpayers if a fund collapses.
And it says superannuation funds should reduce their fees, a move which could result in retirement incomes from super being as much as 40 per cent higher.
It has also taken aim at MySuper.
MySuper is an Australian Government superannuation initiative designed to provide low-cost and simple super products for employers to choose as their default super fund
It recommends that MySuper be replaced with a more competitive system unless it cut its fees dramatically.
But Chair of the Financial Services Council John Brogden says that's not necessary.
"The first point to make is that MySuper is working and is reducing the cost of superannuation to consumers. However, we believe it can go further, and it can go further by removing awards from - removing superannuation in the awards system and allowing for full and open competition by taking the Fair Work Commission out of the process."
Opposition leader Bill Shorten says any changes to the system must protect Australian consumers.
"We make this promise to Australians, that as the government considers the Murray report, labor will make sure to the best extent that we can and that whatever is changed and recommended and occurs, we don't see costs passed on to consumers. We do not believe in strengthening our financial system that it is necessary for financial institutions to pass costs onto consumers and leave consumers the one footing the bill."
Mr Hockey is due to respond to the recommendations after March next year following consultation with the banking and superannuation industries.
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