Treasurer Joe Hockey has described his financial system inquiry as a “general health check” for a sector that served Australia well during the global financial crisis.
The inquiry’s chair, former banker David Murray, will give his initial diagnosis on Tuesday.
Previous inquiries into the financial industry over the past 30 years resulted in the floating of the Australian dollar, the “four pillars” policy governing big banks and a regulatory framework that was the envy of the world during the GFC.
Mr Murray and his review panel was set the task of considering the impact of previous inquiries, identifying factors that could influence the future development of the system and discussing options to respond to them.
Industry bodies like the Customer Owned Banking Association say the inquiry is a once-in-a-generation chance to cast a critical eye over the risks posed by the current arrangements.
The group that represents credit unions, building societies, mutual bank and friendly societies wants a more level playing field and fairer regulatory rules for large and small banking institutions.
In particular, COBA believes the “big four” – ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac – has an implicit guarantee that the government would intervene in the instance of a bail-out being required.
“The ‘too big to fail’ problem posed by dominant banks is well recognised internationally as posing a risk not only to sustainable competition but to the long-term stability of our financial system,” COBA chief executive Louise Petschler says.
In its submission, the Department of Treasury says the perceived guarantee does mean the banks are rated higher than they would normally be, which allows them to raise funds more cheaply than their smaller competitors.
The big four deny that such a guarantee exists.
With the federal government seeking investment into the nation’s much-needed infrastructure, there are also hopes in the superannuation industry that liquidity arrangements could be eased to allow a ballooning savings pool better opportunities into long term investments.
Super savings were relatively small when the last financial inquiry was held in 1997, but now sit at $1.75 trillion and are projected to reach a massive $6 trillion in 2030.
Mr Murray, will hand down his interim report on Tuesday before addressing the National Press Club in Canberra at midday.
His final report is due in November.