The federal government's aim in commissioning the Wallis inquiry into the financial system is to establish a new framework for regulation of the sector which can provide the basis for a more internationally competitive financial market. The four major banks, the National Australia Bank, the ANZ, the Commonwealth and Westpac, are all in favour of a more merger- friendly regime. The smaller regional banks, which comprise the main takeover targets, tend to oppose a relaxation of the current stand on mergers. Non-bank financial institutions support the idea of a single regulator for all financial institutions, while the banks oppose it. The ACCC has warned that mergers between the large banks, and takeovers of regional banks, could undo the competitive gains produced by deregulation.
The Reserve Bank submission to the Wallis inquiry
* A single regulator for all financial institutions is undesirable.
* A merger between two of the four major banks would be acceptable, but any further reduction in number should be resisted.
* Restrictions preventing mergers between the banks and the two largest life offices should be reviewed.
* The interpretation of the Trade Practices Act which holds that each state should have a regional bank in addition to the four major banks should be reviewed.
* The merchant bank statutes of many foreign bank subsidiaries in Australia should be scrapped, and the banks brought within the licensed bank regime supervised by the Reserve Bank.
* Consumer protection regulation in the financial sector should be rationalised.
--and the Reserve Bank does not want a single regulator
The Reserve Bank has argued against the establishment of a single regulator for all financial institutions. It sees the financial market as offering capital guaranteed products, such as bank deposits and insurance policies, and non-capital guaranteed investment products. The Reserve Bank's view is that institutions which offer guaranteed products must be regulated, in order to minimise the risk of insolvency. It believes, however, that regulation is unnecessary for firms offering other investment products, which should instead comply with stringent disclosure rules. The Reserve Bank sees no merit in combining the two types of regulation in one institution and believes it risks conveying the erroneous message that all products are equally safe.