RELEASE OF THE REPORT OF THE FINANCIAL SYSTEM INQUIRY AND INITIAL GOVERNMENT
RESPONSE ON MERGERS POLICY
I am releasing today the Final Report of the Financial System Inquiry.
The Report is a major review of the Australian financial system covering a
stocktake of financial de-regulation, an analysis of the forces driving change
and recommendations on the key issues in regulatory reform. This accords with
the terms of reference set for the Inquiry.
On behalf of the Government I would like to thank the chairman, Mr Stan Wallis,
and the Inquiry members, Mr Bill Beerworth, Professor Jeffrey Carmichael, Professor
Ian Harper and Mrs Linda Nicholls, for their hard work in delivering a quality
report on time.
The Government commissioned the Inquiry because of the significant and rapid
changes occurring in the Australian financial system which are affecting all
Australians, both businesses and individuals. The Government recognises the
importance of ensuring that the regulatory regime is capable of adapting to
the changes occurring in such areas as technology, globalisation and consumer
needs and is one that can best carry Australia into the 21st Century.
The Inquiry's Report has clearly documented the extent of change occurring
in the financial sector and the challenges this is posing to the regulatory
structure. The Report has demonstrated both the need for and importance of such
- The Report notes that an effective financial system delivers many advantages to users. The most direct and transparent benefit is the reduction of costs to consumers. But a more efficient financial system has benefits for the wider economy, as it releases resources for more efficient uses and enhances Australia's competitiveness.
- The Report notes that even a 10 per cent improvement in efficiency in the
financial sector would translate into cost savings for the economy in excess
of $4 billion per annum.
The Inquiry has made a large number of recommendations to improve the regulatory
framework. The Government will give careful consideration to these recommendations
over coming months as it assesses the steps required to ensure that Australia
has an efficient, competitive and stable financial system. I expect to make
a comprehensive statement on financial sector reform later in the year.
The Final Report, the Inquiry's preceding Discussion Paper, and the large number
of submissions made by interested parties provide a very valuable and detailed
body of knowledge about the issues facing the financial system.
As a consequence, in considering the Report's recommendations, the Government
will not be duplicating the formal consultative processes which went into the
preparation of the Inquiry's Report.
Mergers Policy in the Financial System
While the Government will provide a comprehensive statement on financial market
reform after it has fully considered the Report, market speculation in the area
of mergers requires an immediate response from the Government.
When the Inquiry was established, I said that I would review the policies that
applied to mergers in the finance sector in the light of the Inquiry's findings.
The Government has taken note of the Inquiry's recommendations and its findings
on the state of competition in the financial sector.
The Government has decided to end the so-called "six pillars" policy,
which has involved a blanket ban on any mergers among the major banks and the
largest life insurance companies.
The Treasurer will retain powers to reject mergers under relevant banking and
insurance laws. In exercising these powers, I will take into account, but not
be limited by, assessments by the Australian Competition and Consumer Commission
(ACCC) under section 50 of the Trade Practices Act 1974 in relation to competition
considerations, and the advice of the relevant prudential regulators on prudential
The Government has further decided that mergers among the four major banks
will not be permitted at this time. This will be reviewed when the Government
is satisfied that competition from new and established participants in the financial
industry, particularly in respect of small business lending, has increased sufficiently
to allow such mergers to be considered.
The Government has decided to remove the former Government's blanket prohibition
on a foreign takeover of any of the major banks. Any proposed foreign takeover
or acquisition will need to be assessed, like any other proposed foreign takeover
or acquisition, on a case by case basis on its merits in accordance with the
Foreign Acquisitions and Takeovers Act 1975.
In making these assessments, however, the Government will apply the principle (as concluded by the Inquiry) that any large scale transfer of Australian ownership of the financial system to foreign hands would be contrary to the national interest.
9 April 1997