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Banks should justify rate increases to gov’t, Fielding

News Clippings June 25 2009

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AAP
June 25th, 2009

Family First senator Steve Fielding introduced legislation to the Senate on Thursday aimed at placing tighter controls on home loan interest rates.

Major banks would need approval from the treasurer if they wanted to withhold an interest rate cut or put rates up beyond official adjustments by the Reserve Bank.

If the treasurer was not swayed by bank reasoning and insisted on moving interest rates, then they would lose access to the government’s deposit guarantee scheme.

“Banks need to understand that government assistance comes with responsibility,” Senator Fielding said in his speech introducing the bill.

Presently banks had access to a government guarantee on all money deposited into their accounts enabling them to lower their borrowing costs and keep their profit margins stable.

That same guarantee had helped the four major banks increase their market share of home loans from 57 per cent to 72 per cent. 

Similar regulations were already in place for health insurance companies, which are required to seek government approval for premium increases.

Senator Fielding expects a Senate inquiry to consider his bill, saying it was “a huge issue”.

“When the banks start jacking up interest rates with really no justification it is a huge concern,” he told reporters.

Senator Fielding conceded regulation of banks was a touchy issue.

“The question is how far and that’s why a Senate inquiry will help us work it out to get the level right.”