Cost of switching banks to be cut

WAYNE Swan has fast-tracked a Treasury plan to make it easier to switch banks by reducing fees, amid growing anger at the banks' haste to raise interest rates.

Move your money

Move your money elsewhere

The nation's largest home lender, the Commonwealth Bank, hiked its mortgage rates by 0.3percentage points yesterday, above the Reserve Bank's 0.25 percentage point increase ordered on Tuesday.

The Treasurer will meet with the Council of Financial Regulators in Sydney tomorrow in the final consultation before signing off on the plan to increase the portability for banking customers.

The plan -- part of an effort to increase competition among Australia's major banks -- is Mr Swan's first major piece of legislation since becoming Treasurer and could be introduced to parliament in the first sitting fortnight.

Mr Swan is keen to reduce or eliminate the switching and exit fees imposed by the banks on customers, particularly on home loans, which can cost up to $2000 to leave early.

The council is comprised of Australia's key economic advisers: Reserve Bank governor Glenn Stevens, Treasury Secretary Ken Henry, Australian Prudential Regulation Authority chairman John Laker and Australian Securities and Investments Commission chairman Tony D'Aloisio.

"We want a competitive banking market out there, and those institutions that seek to increase their (profit) margins at this time I think will be judged very harshly by Australian families and by the Government," Mr Swan said.

"And that's why I made the point a month ago that we wanted to put together a package that made the market much more competitive and gave people the capacity to switch their banks if they didn't think they were getting a fair go with their existing bank."

The plans have been expedited after Mr Swan ordered a Treasury report into the possibilities of easier switching three weeks ago.

One area under examination could be the $200 to $350 fees involved for customers switching from variable to fixed home loans.

Mr Swan attacked the CBA's rate rise for being above the official Reserve Bank hike, which was seen as a strategic decision to recoup higher funding costs as a result of the sub-prime crisis.

The CBA raised its rates by just 0.1 basis points in the mid-January rush by the banks to move independently of the RBA.

"I think the CBA has a lot of explaining to do and I've got a lot of sympathy for families who I think will be really furious at the CBA for the timing of this announcement, taking the opportunity to further increase rates on the back of the RBA decision," Mr Swan said.

The attack was intensified by Finance Minister Lindsay Tanner, who said the CBA's reputation would suffer from its decision. "I don't think it will reflect well on the bank in the marketplace," Mr Tanner said.

"We are very concerned about the timing ... and I think the customers of the Commonwealth Bank are entitled to be asking questions about their choice of bank as a result."

The CBA increase means the standard variable rate of the nation's biggest lender is now 8.97 per cent.

The rival major banks have their home-loan rates under review and more could move up as early as today.

A CBA spokesman defended yesterday's hike, saying CBA had already absorbed $100million of higher funding costs from August to last December.