Hockey and Swan set to unveil banking reform measures as sector profit hits $28.5 billion

The rush to reform Australia’s banking sector is on. Treasurer Wayne Swan and his Opposition counterpart Joe Hockey are lining up to deliver banking reform measures as community anger grows at the $28.5 billion profit delivered by the sector in 2009-10.

Reports suggest Hockey will today unveil legislation designed to give the Australian Competition and Consumer Commission greater powers to investigate the tactic of “price signalling”, where banking executives talk about the potential for interest rate rises before they actually implement them.

Treasurer Wayne Swan has said he will introduce a number of banking reforms in December, but Hockey says action must be taken now.

“Wayne Swan huffs and puffs at the Commonwealth Bank and then he gets on a plane and takes off,” Hockey said.

“Well, he said he’s been working on initiatives for months – where are they? Release them now before the other three major banks come out with their increases in the mortgage rate for everyday Australians.”

Hockey is tipped to introduce legislation into Parliament that would support his nine-point banking plan, the top item on which is a crackdown on price signalling.

Former ACCC boss Allan Fels has also said the Government needs to change the Trade Practices Act to stamp out the problem.

“Often it’s to soften up the market, soften up the public opinion market, to let other banks know that some banks are keen to put up their prices,” he told the ABC.

“It would be useful to have some provisions in the Act that would catch that sort of behaviour.”

Prime Minister Julia Gillard has joined in the latest round of bank bashing, slamming the Commonwealth Bank’s decision to lift rates by 45 basis points, well above the RBA’s 25 basis point rise.

However, she has ruled out drastic action such as intervening in the setting of interest rates.

“We’re not going down that regulate-the-interest-rate path. That’s economics discarded for the last 30 years. But we are increasing competition which puts the pressure on the banks to do the right thing.”

Figures released yesterday suggest the banks have had a good year, with total profit in the sector hitting $28.5 billion.

However, analysis from accounting firm KPMG said that while profits are impressive, returns aren’t as good as might be expected. Return on equity in the sector was 16%, well below the 20% seen before the GFC.

However, the analysis did show a 36% fall in loan impairment charges, suggesting the banks have largely come through the worst of the GFC.