SYDNEY • Shortly after Australia's central bank cut interest rates to their lowest levels on record last week, the Treasurer, Mr Scott Morrison, made four separate phone calls to the heads of each of the country's four big banks.
Mr Morrison wanted to discuss the banks' refusal to pass on the full amount of the interest rate cut to the nation's heavily indebted mortgage holders.
He politely informed the four CEOs that they would now be required to testify publicly at least once each year in front of a parliamentary committee to justify their decision-making. They will need to publicly explain the impact of international financial developments, their dealings with customers and their setting of interest rates.
The Treasurer's move comes amid growing calls for greater scrutiny of the big four banks - Commonwealth Bank, ANZ, Westpac and National Australia Bank. They are among the most profitable in the world and enjoy relatively light competition due to their strong hold over the sector.
Their decision to pass on only half or less of the official 25 basis point rate cut last week was an embarrassing blow to Mr Morrison and Prime Minister Malcolm Turnbull. Both had previously urged the banks to pass on the entire cut to assist indebted home owners.
Explaining his decision to haul the four CEOs before a parliamentary committee, Mr Morrison said the banks were in a unique position because they were so central to the economy.
"The banks are just not like any other private company out there," he told Sky News.
"The banks operate under a social licence as well as an actual licence in the economy… We're simply saying the banks need to be transparent."
Mr Morrison said the banks also receive the benefits of a scheme in which the federal government guarantees all personal deposits up to A$250,000 (S$258,000) at major financial institutions. The scheme was introduced to instil confidence in the banks in response to the 2008 global financial crisis.
"Coles and Woolworths (supermarket chains) don't have that any more than the coffee shop up the road from my place - and so (the banks) occupy a very special and unique (place)," he said.
The move, coming amid growing public pressure on Australia's banks, is unlikely, however, to end calls for greater scrutiny.
Despite being the bedrock of the national economy, the reputation of the banks has suffered following a series of financial scandals and a repeated failure to lower home interest rates. Thousands of customers and investors across all four banks have lost money in recent years following numerous scandals, including risky investments by financial planners, wrongly charging fees and insider trading.
The opposition Labor Party has called for a royal commission into the banking sector, saying the move to force the CEOs to appear in Parliament was "too little and too late".
"The banks regularly present themselves to parliamentary inquiries," said Labor leader Bill Shorten. "It hasn't stopped the rip-offs and it hasn't stopped the scandals."
Adding to the calls for greater scrutiny, a popular independent MP, Mr Nick Xenophon, has proposed legislation to require banks to give detailed explanations every time they refuse to pass on interest rate cuts in full. He said the banks were "playing scrooge".
"If only they were as quick to act when interest rates go down as they are when they go up," he said.
The banks have defended their decision not to pass on the entire rate cut last week, saying it was a commercial decision and they had to consider the interests of savers, investors and shareholders as well as of borrowers.
The banks have this week been reporting their latest profits, which will only add to further public pressure. The biggest of the banks, Commonwealth Bank, yesterday announced a record A$9.23 billion in annual profit.