Major banks to face parliamentary scrutiny over pricing

The review of the major four banks continues: dates for public hearings were released on Tuesday by the standing committee on economics, which will conduct further public hearings with Australia’s four major banks as part of its review of the performance of Australia’s banking and financial system.

In a statement, the committee said that the hearings will focus on the costs of funds as well as their impacts on margins and the basis for bank pricing decisions.

This comes after the committee released a report in November of last year, which labelled the big four an “oligopoly” and highlighted the “surprising” lack of regulation that has allowed the majors to harness significant pricing power in the residential mortgage market.

The report warned that oligopolies are problematic when then they are able to use pricing power to the detriment of consumers.

It also highlighted the out-of-cycle rate hikes of the big four banks in October of 2015, which the majors attributed to an APRA requirement to hold additional capital.

“However, the magnitude of the interest rate increases in October 2015 (between 15 and 20 basis points for each of the major banks) indicates that the cost of higher capital requirements was borne largely by mortgage holders as opposed to shareholders,” the committee said.

“The major banks’ pricing power is also observable in the fact that they closely follow one another’s price changes, rather than attempting to increase their market share.”

The committee also emphasised that since 2000, at least one of the major banks has increased its SVR out-of-cycle nine times.

“On five of these occasions, each of the other major banks has followed in the same month,” the report said.

The public hearings will be conducted in March and will also focus on:

• Domestic and international financial market developments as they relate to the Australian banking sector and how these are affecting Australia
• Developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
• How individual banks and the banking industry as a whole are responding to issues previously raised in parliamentary and other inquiries, including through the Australian Banker’s Association April 2016 six-point plan to enhance consumer protections and in response to government reforms and actions by regulators

Commenting on the upcoming hearings, committee chair David Coleman remarked: “These hearings provide an important mechanism to hold the banking sector to account before the Parliament.”

The hearings will take place on Friday, 3 March for NAB, Tuesday, 7 March for CBA and ANZ, and Wednesday, 8 March for Westpac.

[Related: Major bank CEO confirms mortgage rates will rise out-of-cycle]