Not just another bank inquiry

Unlike other recent banking sector probes, the royal commission actually raises the prospect of significant reform.

The ACCC report is expected to back last month’s report by the Productivity Commission which basically said the banks play follow the leader and act to ensure net interest margins are held up. (Stuart McEvoy/The Australian)

The ACCC is due to hand its report on bank interest rate setting to Treasurer Scott “cry me a river” Morrison today ahead of tomorrow’s launch of the royal commission hearings into the industry.

The ACCC report, which should be released to the public later this week, will focus in part on how rates are set and what impact that has on competition.

It will also look at whether the banks have passed on the costs of last year’s bank levy onto consumers.

The ACCC report is expected to back last month’s report by the Productivity Commission which basically said the banks play follow the leader and act to ensure net interest margins are held up.

Tomorrow’s royal commission hearing will focus on consumer lending and CBA has already moved to cut two insurance products on car loans ahead of the review.

The increased transparency provided by the commission is one of the key advantages of the inquiry, the other, as noted by Richard Gluyas last week, is the chance of significant law reform coming from the commission to ensure the banks don’t run astray yet again.

There have been some 73 different inquiries in recent years, yet the banks continue to cross the line.

UBS’s Jonathan Mott argues the commission will find the banks have not been as good as they make out on due diligence as cited in his ‘liar loans’ research.

CLSA’s Brian Johnson has warned clients to expect a continual stream of negative media reports which isn’t exactly a good prelude to higher stock prices.

Likewise, banks will be constrained in how they price their books in the light of the commission and, in particular, the ACCC’s work on mortgage pricing.

The increased transparency on the sector should result in more sustainable product selection and sales, assuming the competitive framework is right, which is where the ACCC and PC come into the equation.

But, for the moment, the royal commission will take centre stage.