David Murray has questioned whether stability pacts hinder competition in the Australian banking sector, and has promised the upcoming Financial System Inquiry will explore the issue.
Speaking in Sydney to the Committee for Economic Development of Australia, Murray said it was “not surprising” that regulators have focused on stability rather than competition in the wake of the GFC.
"We will be very interested to examine the extent to which stability objectives might hinder competition, or even perhaps in some cases, promote more competition and reduce systemic risks,” said Murray.
"Inevitably, the object of regulation for stability creates a cost to the economy and we would welcome views on the trade-off between these objectives."
The impact of regulation on competition will be a key focus, said Murray, including whether firms are operating on a “level playing field”.
“Regulation can promote competition, for example by helping consumers make more informed decisions, it can also create barriers to entry and increase compliance costs, with varying outcomes for financial institutions of different sizes."
Murray’s comments come after Standard & Poor’s rating of Australia’s banking sector as one of the five safest in the world.
"Credit ratings in the Australian banking sector have remained strong and extraordinarily stable by global standards in the aftermath of the global financial crisis, which began over five years ago. In our view, we anticipate a continuation of this trend throughout 2014," the S&P report said.
Other countries in the top five were Switzerland, Canada, Germany and Hong Kong.