The federal government will launch a new inquiry into the market power of the big four banks in a new sign of the political fury at the lenders for denying home buyers a saving worth $500 a year by failing to pass on official cuts to interest rates.
Treasurer Josh Frydenberg will escalate pressure on the banks to pass on the rate cuts in full to mortgage customers by threatening laws to expose them to greater competition.
The move comes as Parliament resumes on Monday with Prime Minister Scott Morrison seeking to legislate tougher laws against energy companies, a new emergency response fund and a migration character test that will be opposed by Labor.
After years of defending the banks against calls for a royal commission, the government is increasingly frustrated with bank chief executives who have refused to pass on the Reserve Bank's three official interest rate cuts this year.
Mr Frydenberg will direct the Australian Competition and Consumer Commission to investigate the entire sector's conduct on pricing, including any penalty to customers who stay loyal to their bank.
"The failure of the banks to fully pass on the recent rate cuts to their customers, when their cost of funds have come down significantly, leaves them exposed to the charge that they are putting their profits before their customers," he said.
The inquiry clears the way for two reports in March and September next year on measures to help consumers switch lenders, clearing the way for tougher laws ahead of the next election.
Mr Frydenberg said the inquiry would give the banks a chance to "transparently account" for their decisions, with the findings to be used to give customers the best possible deal.
The inquiry is being backed by new analysis from Treasury that shows the big four banks passed on about three quarters of the Reserve Bank's cuts when it reduced official interest rates by 0.25 percentage points in June, July and October.
Rather than getting the full 0.75 percentage point cut over those three stages, borrowers with owner-occupier loans paying off principal and interest saw their rates fall by only 0.57 percentage points at ANZ, the same at the Commonwealth Bank, 0.59 percentage points at NAB and 0.55 percentage points at Westpac.
Investors with interest-only loans fared much better by gaining a 0.68 percentage point cut at ANZ, the full 0.75 percentage points at the Commonwealth Bank, 0.74 percentage points at NAB and 0.8 percentage points at Westpac.
The analysis suggested customers suffered a $519 annual cost from the refusal of the banks to pass on the rate cuts in full, assuming a loan the same size as the average new mortgage of $409,000.
A customer paying principal and interest on an owner-occupier loan gained a saving in yearly repayments worth $1680 from the rate reduction from the major banks, but the saving would have been $2199 under the official Reserve Bank rate cuts.
The difference for owner-occupiers with interest-only loans was $491 a year, while it was $536 for investors with principal-and-interest loans.
The foregone saving was only $23 for property investors with interest-only loans, showing again that these borrowers have received more of the official RBA interest rate cuts than others.
ACCC chairman Rod Sims signalled last week he wanted an investigation into the big four banks, telling The Australian Financial Review their behaviour raised questions about whether they wanted to "dud their customers".
But the Australian Banking Association has blamed the cost of funding for the inability to pass on the rate cuts in full, while citing a survey that found 67 per cent of mortgage owners were "very satisfied" or "satisfied" with their lenders.
The government's new push comes after mixed results from its previous attempts to pressure the banks, including Mr Morrison's pledge of an "open banking regime" under changes he announced as Treasurer in May 2017.
Those changes have led to a "consumer data right" that gives consumers more power over their personal information at banks.
Mr Morrison also warned about the power of the banks in early August last year when, as treasurer, he released a Productivity Commission report into financial services.
"It is the exploitation of that power that has the potential to constrain competition and deliver a poor outcome to customers," he said at the time.
Parliament resumes on Monday for a fortnight likely to be dominated by the government's attacks on big companies with its "big stick" crackdown on energy companies and the new inquiry into the banks.
The "big stick" divestiture powers appear increasingly likely of passing the Parliament but the government is likely to encounter challenges from Labor on other fronts including migration law.
The government wants the migration amendment to toughen the character test that screens new arrivals, but Labor appears likely to vote against the change after raising concerns last month that it would cause a rift with New Zealand.
Labor is also questioning the source of funding for a new $3.9 billion Emergency Response Fund, which the government wants to legislate this fortnight by transferring cash from an education fund set up by Labor when it was in power.
- SMH/The Age