By Chow Wei Cheng
The Wallis Inquiry recommendations, released on April 9, head back towards the days of 19th century unfettered capitalism. While Wallis recognises that bank profitability is already in the "middle to upper range", the thrust of his report focuses on increasing "efficiency" and competition.
This means letting the "market" decide fees. Or, to put it more bluntly, the banks will charge whatever they think the traffic will bear. The future is unfettered fees, job shedding and no protection of deposits.
This should not surprise. The results of the "inquiry" were predetermined by the government, which selected someone who would have the banks' view of the world to conduct it. Wallis, as the Sydney Morning Herald put it, "came to the inquiry into the financial system as one of the biggest names in the big end of town".
Recommendation 95 (of 115 in total) states: "Institutions should have freedom to set fees and charges based on costs for retail transactions and services without government interference or suasion".
According to Wallis, the government and the banks, competition will keep fees down (someone forgot to tell Colonial State Bank: the day after the report was released, it doubled its fees to 40 cents per electronic transaction).
The market has done little to reduce the wide interest margins on consumer transaction and credit card accounts. Also, the Australian Consumer Association believes that the costs of electronic banking are close to zero.
Wallis concludes differently. Based on "confidential evidence obtained by the Financial System Inquiry" which he admits he had not"sought to validate", he accepts that "at current fee levels and interest rates, the majority of [bank] retail transaction accounts remain unprofitable".
To provide for those who cannot afford a bank account under the new regime, Recommendation 96, states: "governments should expedite the examination of alternative means of providing low-cost transaction services for remote areas and for recipients of social security and other transfer payments".
These mooted quasi-accounts are not likely to meet people's needs in today's society, where bank accounts are almost mandatory, but they will increase the possibility of government surveillance of welfare recipients' consumption and savings habits.
The report also recommended liberalisation of mergers within the industry, removing the restriction on mergers between the two largest insurers and four largest banks. While not allowing outright mergers between the big four banks, it encourages foreigners to buy shareholdings in Australian banks.
The Financial Services Union suggests that a merger between two of the big banks would destroy as many as 35,000 jobs, and the figure is likely to be similar for a merger between insurers and banks.
Finally, the report clarified that there should be no system of formal protection of deposits. If a bank goes broke because of the market, then under the "enhanced information disclosure regime", the consumer should have known better.