Bank loan guarantee a 'barrier'
The Age
Tuesday June 16, 2009
THE Productivity Commission chief has singled out the Government's bank borrowings guarantee as an impediment to competition. Commission chairman Gary Banks has proposed "unhitching" banks from the guarantee as soon as possible.Mr Banks told the annual conference of the Committee for the Economic Development of Australia that he had been "provoked" to comment by the suggestion that competition was vanishing among banks."If we think competition has gone down in the banking sector, to what do we attribute that?" he said."In particular, the regulation that has been necessary, or has been perceived as being necessary in relation to the guarantee, is that a factor?"Therefore, unhitching from that guarantee, and indeed from other guarantees in the finance sector, could be an important part of establishing a competitive market."The head of the macro-economics group at the federal Treasury, David Gruen, defended the guarantee, saying that it wasn't the primary reason the banks now faced less competition."We are dealing with an unforeseen consequence of the US subprime mortgage market," Dr Gruen told the conference."As far as I am aware, securitising prime mortgages from Australia was a perfectly sensible thing to do, and selling them abroad was a perfectly sensible business model."But that has disappeared almost completely as a consequence of the fact that securitisation was misused in the subprime market in the United States."That form of competition in the Australian financial system is no longer there, through no fault of our own."At least for the time being, it is extremely difficult for non-bank financial institutions to sell securitised mortgages into the international financial market. It has been polluted by what went on in the US."Dr Gruen was optimistic about Australia's eventual economic recovery, saying he expected it to "continue to significantly outperform just about every comparable-sized or larger advanced economy".But he said Treasury was forecasting the longest period of sub-trend growth since the Second World War, with a very gradual recovery."Eventually we are forecasting significantly above-trend growth, because we think by the time that happens there will be a lot of unused capacity in the Australian economy."Treasurer Wayne Swan warned CEDA to expect "a rocky road ahead". He said that one of the difficulties in giving such speeches was "talking about recovery when we know full well that hundreds of thousands of Australians still risk losing their jobs".
© 2009 The Age
Share This