No financial sector untouched

David Murray has delivered his Financial Systems Inquiry (FSI) report.

No financial sector untouched

Former Commonwealth Bank chief, David Murray, has delivered his Financial Systems Inquiry (FSI) recommendations and no sector of the financial services industry will remain unaffected if the recommendations are adopted.

While many recommendations focus on the financial services and banking industry at a higher level, there are several which may affect consumers. Below is a round-up of the major recommendations.

Credit and debit card surcharges

As announced last week, credit and debit card surcharges face the chop if the recommendations made in the report are adopted. Visa and MasterCard support the abolition of these fees. Despite legislation passed last year, they have failed to eradicate the problem.

Under recommendations, such charges would be limited to 0.5 per cent of the transaction or 12 cents. This is considerably less than the five to 10 per cent charged on taxi fares by Cabcharge, or the $8.50 charged by Jetstar when booking a flight.

MasterCard, which called for the abolition of such fees in its submission to the inquiry, estimates that Australians pay a total of $1.6 billion in fees per annum, or an average of $130 each. With everything from purchasing tickets (1.95 per cent) to paying a Telstra bill (two per cent), incurring a surcharge, the end to excessive fees is long overdue.

Banks to hold more capital

There has been the long-held view that Australian banks should never be allowed to fail and that the Government should be on hand to bail them out should any financial crisis, such as the GFC, hit. However, the FSI report recommends that the responsibility for financial security should be put back onto financial institutions by requiring them to hold more capital. Currently, Australian banks hold on average 9.1 per cent levels of capital as security, which is below the median level of 10.5 per cent and even further below the 12.2 per cent required to be in the top quartile of banks around the world.

In order to level the playing field in the mortgage sector, it is recommended that the big four banks would need to hold more capital to offset risk on mortgages. Currently, the big banks only hold about 18 per cent of the capital against mortgages and the smaller institutions about 39 per cent. An acceptable level has been recommended at between 25 and 30 per cent.

It is estimated that the big four banks would need to raise about $20 billion to meet this level of capital retention. The banks have responded by saying that this could result in consumers paying more in mortgage interest rates.

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    8th Dec 2014
    Not before time.
    8th Dec 2014
    The problem with banks is not just fees but rather that they 'invent' new money via an accounting fraud. If people knew how little equity banks actually had and how vulnerable they were they'd probably put their money under the bed.
    Falling house prices or a significant world shock are the Achilles Heel of the banking system. Last in borrowers who have borrowed 95%+ and leave their keys on the kitchen table in a falling real estate market would see our banks end up like the US banks, some of whom went broke and others whose share price dropped by 90%.
    The other issue people need to understand is that legislation has been enacted IN AUSTRALIA so that the big banks are allowed to steal your deposit money should they fall on hard times. APRA is responsible for this and one has to see the fingerprints of the big 4 all over this dishonest piece of legislation. The public has not been informed about this other than via a couple of side comments which were not up for debate but this has all been put in place to protect the bank, not you. But whilst the party goes on there should be no problems.
    8th Dec 2014
    And Mick, what about the double whammy if house prices drop when SMSFs have borrowed on their taxpayer subsidized super which is meant to reduce their demand on the Age Pension? Stopping that is a major suggestion, but, will govt. have the guts to implement it?
    Add increasing the borrowing ratio (higher deposit) and you might just have the catalyst for that double whammy, or, push first home buyers further out of the market!!
    Why did bank shares jump AFTER the report??
    8th Dec 2014
    I agree.
    I was appalled that SMSFs were allowed to borrow and gamble. That is the wrong way to go with retirement benefits.
    The problem is not increasing house prices. The problem is that there are not enough houses are being built...which is driving up the price of existing stock. The remedy is cutting red tape (stamp duty and the costs of compliance with moronic councils) and releasing more land.
    Don't know why bank shares jumped. Maybe it was a sigh of relief that Murray did not recommend cutting out negative gearing as this would have hurt banks.
    Tom Tank
    8th Dec 2014
    It might be quite a challenge for a Government who by their actions always cosy up to the big end of town.
    A dramatic re-jig of the taxation system is long overdue to try to bring some element of fairness so that all sections of the community pay their fair share. Howard managed to skew the system to favour the well off at the expense of the ordinary person in the street.
    SMSF's should not be allowed to borrow against their superannuation, negative gearing really should go, the use of family trusts need to be curtailed etc.
    This is all apart from the Banks and their predatory actions.
    Perhaps a good starting point would be the elimination of bonuses to senior management as the accumulation of these bonuses could very well distort the efficient running of an organisation in order for a CEO to maximise their bonus. We have seen this happen before.
    I won't hold my breath on anything worthwhile happening given the unbelievable turmoil in the LNP at the moment.
    8th Dec 2014
    Be real careful about the tax system Tom. Whilst I agree with you we should remember that the Hockey budget had new taxes for all of us whilst the company tax rate was dropped by 1.5%. Even after this windfall the business lobby has kept up the relentless media bleating that they are paying too much and need tax reform. What the big end of town never mentions whilst they demand equal remuneration with our American counterparts is that in America the company tax rate is 35%...not 28.5% as it will be if Hockey gets his budget through.
    Your last sentence is of course a realisation that the big end of town rarely ever loses out and that many of the perks are not going. The only thing which is going to shake the rorts out is a great government or a full blown depression.
    8th Dec 2014
    Until reports are acted upon by independent non-political committees,who would then instruct governments what to act upon,very few recommendations will be pursued.
    Political parties need to act for us,not for future power.
    8th Dec 2014
    Governments rarely bite the hand that elects them...although this government and its Commandant are doing a good job of it. Such is arrogance and complacency.
    One of the reasons I continue to plug away for Independents is that I realised many years ago that both sides are little more than prostitutes who say anything to get votes and then do an about face when elected. If one looks at who tackles the hard issue it is often Independents...whose only support seems to be via the balance of power. We need more folk sending a message to get real change in politics.
    8th Dec 2014

    For the umpteenth time, I invite you to profile an "Independent" and explain just how they could remain "independent" as possibly a lone voice in the wilderness.

    I maintain that, in the cut and thrust of political reality, your so called "independents" will do their share of back scratching with other "independents" to further their own agenda.

    Look at the current scene where Nick Xenophon, a notional "independent" is now talking about forming his own party comprising like minded individuals (read other "independents") to have a greater say in the conduct of Government.

    Thus it ever was and ever will be. "Independents" are a pipe dream in the face of organised political parties.
    8th Dec 2014
    All these enquiries and huge dollars paying people like Murray to do something that the govt won't change.
    Taxes such as stamp duties and state taxes were supposed to have been elliminated with gst. The budget needs to get back to line items instead of a slush fund.
    Eg. If we add a tax in cigs and alchohol with arguement to assist cancer patients and medical then that's where the tax taken should be used.
    Let's face it state govts demand that govt bodies make line item budgets so why shouldn't they do it.
    We need to make a 5th and 6th banking sector. Start with the credit union banking take the 5th and if there is enough split it and make it the 6th.
    currently credit unions are stifled by big banks because they hold the credit unions to ransom.
    They are steadily taken ownership of credit unions by blackmail. We lend you money and we take a share.
    Wake up reserve bank and do your job. They should have been made to do Murray's job within their budget as that is what they are paid for.
    8th Dec 2014
    If only Smokin Joe could run the budget with as much efficiency we would be at peace!
    8th Dec 2014
    If Smokin Joe and his front bench colleagues were honest there would not be much opposition. But when you attack the bottom half of society whilst at the same time delivering tax cuts to the rich then you get class warfare. When has it ever been any different?
    Not Senile Yet!
    10th Dec 2014
    It is not the Financial sector that are ripping off the Tax is our own governments lack of BALLS......their refusal to make big corporations pay a reasonable tax and remove some of their tax concessions.......that is really hurting the balancing of the budget!!!!
    As for the Big Banks.......when everything including wages went electronic and they controlled most of the money......all their fees for statements and cards should have been removed by legislation!!!