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