THE DISTILLERY: Competitive banking

Jotters examine the need for another Australian banking review, while one scrutinises Fortescue's debt deal.

After loudly forecasting the end of Australia's resources boom, Deloitte Access Economics has again rocked the business boat with its call for a large-scale review of the domestic banking system. And while politicians and bankers have had plenty to say on the matter, Australia's scribes weren't far behind. Jotters disagree about the need for another inquiry – one thinks an examination might help address the big four's reliance on offshore funding, while another fears it risks weakening an industry that has already demonstrated considerable strength. Elsewhere, Fortescue's debt deal is put under the microscope, while the Reserve Bank is tipped to keep rates steady at today's meeting.

First up, The Australian Financial Review's Chanticleer columnist, Tony Boyd, wonders why Ian Harper, director of Deloitte Access Economics, is pushing so hard for another inquiry into competition in Australia's financial system.

"Harper’s prime complaint is that mutuals have trouble raising capital in wholesale markets and are therefore forced to compete with the big banks for deposits. This has made them less competitive. But they have a role in society and this can continue without a financial system inquiry. Mutuals such as credit unions and building societies will never be able to compete with the big four banks. They do not have the funds to invest in the necessary technology."

On the same theme, Fairfax's Eric Johnston sounds a warning about pursuing a banking review with the aim of increasing competition in a single area.

"As financial markets have repeatedly shown, a push to secure a desired outcome in one area often leads to significant distortions in others. Any additional aid to credit unions risks disadvantaging regional lenders such as Bank of Queensland or even Bendigo's community-based banks."

The Australian's John Durie goes further, worrying that a large-scale review would destabilise Australia's entire banking system.

"The Australian financial system has just emerged virtually unscathed from the worst financial crisis since the Great Depression, which begs the question: if the system isn’t broken, why fix it? The system isn’t perfect and there are a range of modifications that could be considered but this could be done without a major inquiry that threatens to create uncertainty at the very time the industry just wants to get on with business."

The Australian's Richard Gluyas is more receptive to the idea, but argues any 'Son of Willis' inquiry must examine "the great Achilles heel of our banks" – their worrying reliance on offshore funding.

"For the banks to be able to sustainably fund an economy that's growing at a healthy clip, the big four need to have a more stable funding base. One way to do that is to tap the $1.3 trillion superannuation system by tilting incentives – certainly not through mandated investment."

The Australian Financial Review's Matthew Stevens examines the other big story of the day: Fortescue's latest $1.5 billion debt deal. Stevens says the agreement hold clues about new trends in the mining industry, and among lenders that provide their debt facilities.

Stephens' colleague Jennifer Hewett backs Tony Abbott's comments about the need for free speech in the media, as key Labor ministers push for tighter regulation in the sector.

In the Fairfax press, Ian Verrender says there is "ample reason" to believe the local share market has bottomed, but there are equally as many reasons not to be too hopeful about a big rise in the near-term. He warns "the wild mood swings are likely continue or at least the rest of the calendar year and that growth is still an elusive dream."

Finally, The Herald Sun's Terry McCrann says there's "no way" the Reserve Bank will move its cash rate at today's meeting. He says the central bank will continue to "wait and watch" for now.

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