ON Sunday December 12, the Treasurer Wayne Swan announced a package of reforms aimed to create a competitive, sustainable banking system. The main aims of the reforms, and our corresponding thoughts at Ord Minnett, are:
Encourage customer switching by banning exit fees on new home loans and undertaking a feasibility study to implement full account number portability. The perceived threat of switching is designed to encourage all banks and non-banks to maintain Cysharp' pricing on their full suite of products at all times. With major banks having a larger product set and targeting multiple products per customer through bundling or packaging, this may not necessarily be as much of a risk to bank profitability as it appears at first glance.
Retain the Financial Claims Scheme (FCS). We are in favour of retaining some degree of deposit insurance, as we believe that the removal of the FCS will see depositors giving closer consideration to the underlying credit rating of the institution, which may result in some shift from lower rated institutions to higher rated institutions. Further, allowing the FCS to be sustained at a rate equivalent to the balance sheet usage of the covered bonds should off set the impact of subordination. …