'Big banks must lose their unfair advantage in shake-up'

FAIRNESS, integrity and prudence will be the watch-words of a new Abbott Government inquiry set up to investigate the financial services industry.

A statement from Treasurer Joe Hockey late last night announced the inquiry to examine how best to provide a more "efficient, competitive and flexible" financial system.

Part of the government's deregulation agenda, Mr Hockey said the inquiry would help to lower fees and less costs for consumers, investors and the business community.

Largely welcomed, the Customer Owned Banking Association called on the inquiry to ensure the "unfair advantages enjoyed by the big four banks" should be a key target.

Association chief executive Louise Petschler said the focus on competition and consumer choice was encouraging.

"However, there is an elephant in the room - actually, four elephants - not directly mentioned in the draft terms of reference," she said.

"While 'systemic risk' is covered, there is no explicit reference to the massive hidden subsidy the big four banks receive in the form of an implicit government guarantee."

The head of the Australian Bankers' Association, Steven Munchenberg welcomed the inquiry, but said it must focus on protecting stability in the industry.

He said balancing stability with competition, innovation and "our capacity to deliver affordable banking services to all Australians".

Mr Munchenberg said the inquiry should also ensure the banking system continued to meet the needs of shareholders, customers and the broader community.

The inquiry will deliver its final report by November next year, after a two-week consultation period starting now, and an interim report in September 2014.