The Senate Economics References Committee Inquiry into the post-GFC banking sector has called for the possible implementation of a scheme which would see Australia mirror Canada's financial model.
The MFAA has for some time been recommending that the federal government inject competition into the banking system by providing strong mortgage funding for non-bank competitors through a model adopted in Canada.
MFAA chief executive officer, Phil Naylor, who attended a Canadian mortgage conference last week, made submissions to the Senate Committee earlier in the year for a permanent solution to the non-bank sector's lack of funding access.
He suggested the adoption of a system similar to Canada, through which the government has invested $300 billion in National Housing Act mortgage-backed securities and bond programs over the past five years.
The Senate committee’s report recommended that further research be done into how the Canadian model could be applied in Australia, so that it could be implemented quickly in case of future deterioration in the securitization market.
The report continued by saying that further investigation of the Canadian model could form part of a broad ranging inquiry into the financial sector.
Naylor welcomed the committee’s recommendation.
"Australia needs a strong and viable non-bank lending sector, which has been afflicted by continuing rises in wholesale funding costs and the closure of securitisation markets.
He says the Canadian government’s model has successfully stimulated competition in the banking sector, which has, in turn, benefited borrowers and the wider economy.
“Canada is similar in size and population to Australia but its citizens enjoy the economic advantages of a more competitive mortgage market and lower mortgage rates because of healthy competition.”
In March 2012, banks held a 92.4% market share, credit unions 4.6%, building societies 1.6% and non-bank lenders 1.1%.
“This uncompetitive market manifests itself in poor service levels and lack of availability of products. The Canadian Mortgage Bond system assists competition by ensuring there is a quality flow of securitised funds available to non-bank and bank lenders. This ensures there is a wider range of lenders in the mortgage market offering mortgage loans.”
Naylor says that any system which enables more lenders to be viable in the market will produce greater interest rate competition.
“The Canadian solution has ensured competition through sufficient low-cost funding, resulting in profits for the government and competitive returns for investo