In the 2017–18 Budget, the Australian Government announced additional funding for the Australian Competition and Consumer Commission (ACCC) to establish a permanent unit to undertake regular inquiries into specific financial system competition issues. The Government said it would facilitate greater and more consistent scrutiny of competition matters in the economy’s largest sector, which had been lacking to date.
The Residential Mortgage Price Inquiry is the first task of the ACCC’s Financial Services Unit (FSU) with the price monitoring period to finish on 30 June 2018.
The Australian Government announced the Major Bank Levy on 9 May 2017. The Treasurer, the Hon Scott Morrison MP, issued a direction on the same day requiring the ACCC to undertake an inquiry into the prices charged or proposed to be charged in relation to residential mortgage products by Authorised Deposit-taking Institutions (ADIs) affected by the Major Bank Levy. The Treasurer directed that the Inquiry cover the period from 9 May 2017 to 30 June 2018.
The Treasurer also directed that the ACCC have regard to the Government’s view that banks need to fully and transparently account for their decisions, ‘and hence how they balance the needs of borrowers, savers, shareholders and the wider community’. Transparency is of particular focus for this Interim Report.
A copy of the Treasurer’s direction to the ACCC is at Appendix A. There are five ADIs subject to the Major Bank Levy:
- Australia and New Zealand Banking Group Limited (ANZ)
- Commonwealth Bank of Australia (Commonwealth Bank)
- Macquarie Bank Limited (Macquarie Bank)
- National Australia Bank Limited (National Australia Bank), and
- Westpac Banking Corporation (Westpac)
Combined, these five ADIs (the Inquiry Banks) held approximately $1.3 trillion in outstanding residential mortgages as at December 2017. This was about 84 per cent of all outstanding residential mortgages held by all banks in Australia at the time.
There is considerable disparity in the size of the residential mortgage portfolios of the Inquiry Banks. Macquarie Bank has the smallest residential mortgage portfolio of the five banks by a large margin (Table 1). The remaining Inquiry Banks—colloquially referred to as the ‘big four banks’—accounted for about 75 per cent of the value of all new residential mortgages approved by ADIs in the September quarter of 2017.
There are over 100 other lenders, mostly ADIs, that also provide residential mortgages. The pricing of these other lenders is not the focus of this Inquiry.