Inquiry to look at bank debt guarantee

An inquiry will look at whether a debt guarantee for the big four banks has distorted the market. Source: AAP

THE head of an inquiry into Australia's financial system says government backing of the big four banks during the global financial crisis may have given them an unfair advantage over smaller rivals.

Small lenders and the Department of Treasury have argued the wholesale debt guarantee for major banks helped to create an unfair playing field and allowed the big four to access funds more cheaply.

The chief of the federal government's financial system inquiry, David Murray, says there remains a perception Commonwealth Bank, ANZ, Westpac and National Australia Bank are too big to fail.

"The perception of the government as a backstop may provide competitive advantages for some and can distort prices at the same time," he told a lunch in Sydney.

"The GFC shifted public expectations of when and where governments will intervene; the question for us now is whether we are content to accept that shift."

Commonwealth Bank has argued there is no special treatment for the major banks, submitting to the inquiry there is general government support for the whole banking system.

Mr Murray said the inquiry, which will release an interim report in July, would focus on three issues: government intervention in the sector, the potential consequences of current financial system settings and potential drivers of change in the economy.

He also said he would like to see reduced regulation of the financial system.

"From here it would be a fantastic outcome if the regulation of our system was kept at its necessary minimum while the supervision of the system was kept at world's best practice," he said.

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