Q: I’ve been reading a lot in the media about the Financial System Inquiry (FSI), but I don’t really understand if, or how, it will impact me personally. I am a home owner and have an investment property, both with mortgages, so do you think I need to worry about my interest rates rising?
A: Every 15 years or so the Australian government reviews our financial system to make sure it’s working effectively and has the right level of regulation to support our economic growth.
The FSI gets input from industry locally and internationally, and makes recommendations on ways to improve it for the next 10 to 20 years. These recommendations are just that, so it’s up to the government to decide what, if any, changes they will actually make.
The FSI made 44 recommendations in its report released last month, with five specific themes including economy resilience, superannuation, innovation, consumer outcomes and regulation systems.
For the average Australian I don’t believe there’s a need for concern about rising interest rates.
A recommendation has been made for big banks to hold more capital so that they are safer in case of another financial crisis. This would also help to create a more level playing field between the big banks and smaller lenders in the mortgage market, who currently have to hold more capital than their bigger counterparts.
One of the ways the big banks can increase their capital is by passing costs onto consumers through the interest rate you pay for your mortgage; however I believe significant increases are unlikely because of the tight competition.
If the big banks pass on their costs to their borrowers, they will risk losing their share of the mortgage market to competitors. The RBA also wouldn’t want borrowing to become too expensive and could step in and reduce the cash rate if this started to happen.
Overall, I think the FSI’s recommendations are largely pro-consumer, and it may be sometime before we see changes implemented off the back of the report.
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