The competition regulator says its new powers over mortgage pricing should make the banks reluctant to pass through the costs of the bank levy to their customers because internal deliberations about such a move would be made public.
In his first interview since the budget established an Australian Competition and Consumer Commission inquiry into mortgage pricing that gives the regulator access to internal bank documents, chairman Rod Sims said the banks’ current explanations for out-of-cycle rate moves are unsatisfactory.
The ACCC new role will be to force more transparency about the drivers of pricing but he expects this function will affect the banks’ behaviour.
“Absolutely we will be understanding their internal information so we can see what their decision-making logic was in making whatever changes they make,” Mr Sims told The Australian Financial Review.
“It is logical you might do things differently when you know the public’s got this inside window into what you are doing and why you are doing it.”
The government has warned the banks not to pass on the cost of the $1.5 billion-a-year bank levy to customers, but the big four – including National Australia Bank chairman Ken Henry – have warned it is likely most of the cost will be borne by customers.
Mr Sims said he had no preconceived notions of the right balance for allocating costs between consumers and shareholders but said that competition concerns would be triggered if all the banks passed through a substantial amount of the new impost.
“In a competitive market, there are limits to what you can pass on, and I have certainly observed in the past I think the banking market is perhaps not as competitive as it could be,” he said.
“What things are absorbed and what things are passed on feeds into deciding just how competitive this sector is,” Mr Sims said. “Because the levy applies to the five [biggest] banks, and the [smaller] banks think it is a good idea by improving their competitive position, I think it will be a good indication of competitiveness in the banking market to see exactly what goes on with [potentially passing on] the levy.”
The comments suggest analysts’ concerns that the new power of the ACCC may curtail banks’ ability to maintain their margins through repricing may be justified.
With banks typically announcing mortgage interest rate changes within days or even hours of each other, Mr Sims said the timing of repricing announcements would also be scrutinised and could provide additional evidence that the sector lacked competition.
Mr Sims also rejected comments last week by financial system inquiry chairman David Murray that the ACCC’s new powers were akin to 1950s price controls, noting that since the abolition of the Prices Surveillance Authority in the mid-1990s the ACCC’s role had become one of monitoring.
“Our monitoring does affect prices, but it does that through transparency and making things public – which obviously companies don’t like, they don’t welcome our examination – but it is a long, long way from any role that directly controls prices.”
After Dr Henry highlighted in his interview on Wednesday with The Australian Financial Review that the budget had changed regulatory structures that might require another financial system inquiry, Mr Sims said he wouldn’t comment on other regulators but the ACCC’s powers had not changed fundamentally. Yet its additional funding would allow it to more aggressively examine the banks.
With the relationship between the government and banks toxic – and Opposition Leader Bill Shorten declaring that if any bank passes on a dollar of the tax to families then that should be the end of the government – Mr Sims said the ACCC would not be drawn into the political maelstrom.
“We do the job we are asked to do. We’ve been asked to do a range of inquiries over many years, from both sides of politics. There is clearly a directions power under the act but we are a completely independent and, obviously, apolitical agency.
“We are not feeling any heat or concern about the political debate going on, which we will obviously stay well out of. We won’t get involved in that at all. We will just do the job we’ve been given – and we will do it very well.”