WHAT THE PRODUCTIVITY COMMISSION SAYS IS WRONG WITH OUR BANKS

* The Four Pillars policy that prevents the major banks from merging is ‘redundant’ because it is not clear that it is meeting its objective of competition and may instead be having a reverse effect, the Productivity Commission’s draft report says.

* The fall in the Reserve Bank’s cash rate has not been fully passed on by the banks across the board.

* Large banks enjoy a lower cost of funding compared to smaller institutions but such benefits are not passed on in the form of lower interest rates.

* Customers face barriers when trying to switch banks making loyal clients ‘ripe for exploitation’.

* Bank levy imposed in last federal budget offers no benefit to consumers – ‘it may ultimately cost them something’ – and does nothing to improve competition.

* Regulatory action to slow interest-only residential new lending in early 2017 resulted in higher interest rates on both new and existing investment loans, leading to a windfall for the banking sector and a $500 million a year bill for taxpayers as interest on investment loans is tax deductible.

* Home loans originated by mortgage brokers have only slightly lower interest rates than those originated by banks and brokers should be required to provide ‘plain-English’ documents when recommending a loan.

* Interchange fees on card payments should be banned by mid-2019.

* Regulators have focused almost exclusively on prudential stability since the global financial crisis as the benefits of competition to individuals and businesses have been reduced.

* Regulatory roles of the Reserve Bank of Australia, Australian Prudential Regulation Authority and the Australian Securities and Investments Commission require rethink and consideration should be given to whether the Australian Competition and Consumer Commission can do more.

* The Productivity Commission’s final report is due in July.