Doorstop: Financial System Inquiry

20 October 2015


SUBJECT/S: Financial System Inquiry; Michael Lawler and Kathy Jackson

JIM CHALMERS, SHADOW MINISTER FOR FINANCIAL SERVICES AND SUPERANNUATION:  It’s been eleven months since the Government received from David Murray the Inquiry into the Financial System of Australia.  It’s been seven months since that report was released publicly.  In that time, we’ve had two Treasurers and we’ve had three Assistant Treasurers.  So it’s about time that the Government released the Financial System Inquiry response.  It is pleasing to see that they will be doing that later this morning.

The financial system in Australia is such a crucial part of our economy.  It employs directly almost half a million Australians.  Every Australian’s life is touched one way or another by the financial system of this country. So it is crucial that we put the necessary thought and consideration into how we can improve our financial system.  David Murray and his team have done a great job examining all the issues over a long period of time and producing what is a very thoughtful and very considered report.   

There won’t be a grand national consensus on every element of the report.  Not everybody will agree with every single one of  the recommendation handed down by David Murray.  Nor will everybody necessarily agree with every single part of the response that the Government puts out later today.

For our part in the Labor Party, we have committed to play a constructive bipartisan role in the response to the Financial System Inquiry where that’s possible.  Of course, there will be issues where we disagree but overall we want to take a constructive approach to the decisions and announcements that are made public later today by the Treasurer and the Assistant Treasurer. 

So far all we know from the Government is that they have what is an unwarranted, unnecessary, ideologically-driven attack on the current system of superannuation governance in this country.  It is extraordinary that before they even responded to the Financial System Inquiry, they put into the Parliament already this attack on the representative board model that sees employers and employees sit around the table and work out what is best for their members – a system that has delivered extraordinarily positive gains for members right around the country.   

We hope that the rest of the response to the Financial System Inquiry is better than that, is less ideological than that, is better motivated than that, so that we can all get around a table together and work out  how we can make the financial system in Australia work for Australians and not against them.

JOURNALIST:   The banking industry is shaping up for a big fight over this. How important will that bipartisan approach be and are you willing to cop a bit of flak from them as well as copping flak from the Turnbull Government?

CHALMERS:  The amount of capital that banks hold is one of the important recommendations of the Inquiry.  David Murray said that banks should hold enough capital to make them ‘unquestionably strong.’  That has been in the public domain for some time and APRA has already had a lot to say about that issue and, of course, there’s also an international process going on to ensure that, globally, banks are strong enough to withstand the sorts of pressures that they were during the global financial crisis. That will be a contentious issue among the banks; it already is.  The banks have already had a lot to say, and we have seen already that they are moving to bolster their capital.  Some of them are raising equity.  We had Westpac last week make their announcement. So I do expect that to be a contentious part of the conversation that follows the Government’s announcement today.  Again, we will play a constructive role.  We want to make sure that the banks aren’t lifting the prices of their products more than is necessary, more than is justified following the requirements that might be put on them down the track by APRA.

JOURNALIST:  Should there be more pressure put on Westpac to reverse what it did last week and make it reverse its statement that APRA and the Government’s decisions were to blame?

CHALMERS:  One of the key reasons why we want our financial system to be competitive – we want our banks to be competitive – is we want to give consumers the ability to choose which bank suits them the best.  We want them to have the capacity if one bank does the wrong thing by them to choose another bank easily.  That’s an important part of a well-functioning, competitive financial system.  We don’t think that Westpac made an adequate case or a convincing case for what they did last week.  We think that they should have made a more convincing case about their actions.  If other banks follow suit, I think that their consumers will take a very dim view of it, and ideally in a competitive financial system, people will be able to vote with their feet.

JOURNALIST: What do you make of Michael Lawler’s bizarre performance last night on Four Corners?

CHALMERS:  Look, I didn’t watch Lawler and Jackson on Four Corners last night but it has been the subject of some chatter around the place including on social media.  I don’t think I will be catching it.  It sounds like a bizarre experience on Four Corners last night.  The only thing that comes to mind for me is that Christopher Pyne stood up in the Parliament time after time and defended Kathy Jackson.  So Christopher Pyne’s credibility is as much at stake as Kathy Jackson and Michael Lawler in this whole sorry episode.

JOURNALIST:  Just back to the banks.  Do you think it’s far if the banks do pass on costs associated with some of their changes?

CHALMERS:  Look, I don’t want to get into a hypothetical about what banks may or may not do in response to the changes.  I think it’s important that if they do respond that that response is justified.  That it’s fair.  That it reflects the new commercial reality and not some attempt to try and raise more money than is necessary to meet the requirements.  I think that’s why people were unhappy last week with Westpac and the actions that they took that the case wasn’t adequately made that that sort of interest rate rise was necessary to cover the costs of any changes that might be coming down the track.

JOURNALIST:  It’s pretty straight up and down though isn’t it because if they need to raise more capital it is either shareholders or customers?

CHALMERS:  Well banks are already raising equity as you say.  Westpac took that decision last week as you know.  There is a whole range of ways that they can go about it.  They will make the case that whatever changes that are down the track make their products more expensive. I say let them make the case.  We will judge that case on the merits if and when they make it.

JOURNALIST:  There is a lot spoken, obviously, about the home loan side of things and they put that up if they want to raise the money. But at the same time you have got depositors and people with a massive investment in bank shares, so there are two sides of the equation and very much retirees are hit on the other side of it.

CHALMERS:  There wouldn’t be an Australian that isn’t in some way touched by the changes that are made from time to time to the financial system, you are right about that. There are swings and roundabouts when it comes to the pricing of products.  We want that pricing to be fair.  We want the system to be competitive and that’s what today should be all about.

Thank you.