By Peter Martin
THE Commonwealth Treasury is on a war footing, preparing for a public assault on any bank that attempts to push up its mortgage rate in excess of the expected Reserve Bank rate rise on Melbourne Cup Day.
The department's executive director (markets), Jim Murphy, revealed the plans as the shadow treasurer, Joe Hockey, called on the government to punish any banks that imposed an excess increase.
''The banks are testing the water to see how the public will react to an excess rate rise,'' Mr Murphy told a Senate hearing. ''At the moment they are constrained. The Treasurer has made a number of very strong statements and they are paying attention.''
Asked whether more needed to be done to restrain the banks on Melbourne Cup day, Mr Murphy said the Treasury was amassing information on each bank's cost of funds and would use it to hold them to account.
Treasury data showed banks including Westpac had lost market share to the National Australia Bank as a result of its decision to break from the pack and impose no excess increases.
The government's bank switching package may have helped, although it ''still could be improved a bit''. The comments suggest the government is planning further action to lift competition in addition to publicly attacking any bank that imposes a top-up rate rise.
Asked whether Treasury would like to invoke Section 50 of the Banking Act giving the Commonwealth the power to control rates, Mr Murphy said: ''No, that section is for emergency circumstances''.
The Treasurer had other plans to hold the banks accountable. ''They are operating in the Australian community and they are largely operating with the goodwill of the Australian public, they have to take note of that.''
Many Australian businesses had lost profits as a result of the global financial crisis. Banks should not be immune. ''Before the financial crisis money was cheap. It was cheaper than it should have been. We are in a better world now where the cost of funds is back to its right level. The banks should not be compensated for that.''