The Financial Services Inquiry, otherwise known as the Murray Report was tasked with creating a blueprint for Australia’s financial system for the next decade. It was commissioned in 2013, sixteen years after the 1997 Wallis Financial Inquiry, which itself was preceded by the Campbell Report in 1981. It was handed to the Government in late 2014 and part of its aim was to ensure that the present financial system was efficient, resilient and provided fair treatment of all parties within the system.
The Report made forty-four recommendations which can be divided into five categories:
- creating a more resilient financial system
- lifting retirement incomes
- creating conditions more conducive to innovation
- dealings between financial services firms and their customers
- enhancing regulator independence, accountability and minimising future regulation
The Commonwealth Government today released its response and it agreed with all but one of the Report’s recommendations and objected to the process of implementation of another. The one complete objection was to Recommendation 8, the proposed prohibition to limited recourse borrowing by superannuation funds, usually to purchase real estate.
Most of the recommendations have been well canvassed in YieldReport and other media with the most pertinent for fixed income investors being the amount of capital that banks will be required to hold to make them “unquestionably strong” and more in line with the top quartile of their internationally active peers. Banks have already responded by raising around $30bn in various forms of hybrid and equity capital but markets anticipate there will be further adjustments over the next 12-18 months.
AMP Capital’s Shane Oliver said the report’s recommendations regarding extra bank capital would add pressure on the RBA to lower the cash rate in order to offset the higher mortgage rates banks would charge. This is leading a number of commentators to speculate that the RBA might cut rates as early as November.
Readers who wish to view the complete response can do so by clicking here.