Banking Reforms Met With Mixed Reviews

Banking reforms proposed by the Australian government over the weekend have been met with mixed reviews.

The reforms, which include banning mortgage exit fees from July 1st 2011 and providing small lenders with new funding avenues, were announced by Federal Treasurer Wayne Swan on Sunday.

Mr Swan has pledged to increase competition in the banking sector to help reduce interest rates and ease the burden for businesses and mortgage holders. In addition, he has empowered the Australian Competition and Consumer Commission to act on price signalling.

He stated that the package would "build up competition in our banking system, which will ensure that interest rates are lower over time".

Consumer group Choice welcomed several aspects of the reforms including the transferability of lenders’ mortgage insurers, mandatory fact sheets for home loan customers and the ban on exit fees. They also approved of the review of ATM fees and the credit card reform legislation.

However, economists fear that the proposed ban on mortgage exit fees could be potentially damaging for smaller lenders.

Shane Oliver, head of investment strategy at AMP Capital Investors warned that if banks are no longer able to charge high exit fees, they will be equally unable to offer low mortgage rates:

'If exit fees are banned for mortgages, it could actually force up mortgage rates for some of these non-bank providers'

The Green party also argued that whilst long overdue, the cuts in ATM fees were only part of the solution to a larger scale banking fee problem which costs many Australian households up to $1000 a year.