The federal opposition has released the terms of reference for an inquiry it’s proposing into Australia’s financial system.

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The terms of reference include various sorts of consultation, analysis of developments since the Wallis inquiry in 1997, the impact of the global financial crisis on the finance industry, as well as factors likely to affect the sector’s further evolution and measures likely to encourage competition.

Shadow treasurer Joe Hockey says now is the time to have a system-wide inquiry which would deliver a framework to assist competition and stability.

He says most importantly it will help inoculate Australia against the sort of future shocks that we have to be prepared for following the global financial crisis.

Earlier, he attacked Treasurer Wayne Swan’s plans for a fifth pillar beyond the four big banks, made up of smaller players like credit unions and building societies.

Hockey said Mr Swan’s thought bubbles are bumping into each other as he encourages competition on one hand, yet says he has to create competition on the other.

He says the 12 remaining Australian-owned banks would be disenfranchised by increasing competition rather than facilitating it, and the government doesn’t know what it’s doing.

The opposition’s introducing legislation to federal parliament today that aims to beef up the consumer watchdog’s powers to prevent price signalling among the big banks.

Greens say they have the answer

Australian Greens leader Bob Brown says both Mr Hockey and Mr Swan both need to wake up and take real action against banks.

“But Joe Hockey’s not going to, instead he’s bringing in a bill to have some restrictions on announcements by banks.”

It was not going to help the people who were distressed by the banks raising their interest rates.

“It’s not going to go anywhere near where the Greens have,” Senator Brown said, referring to moves to cap interest rates at the level set by the Reserve Bank and curb ATM fees.

Senator Brown says building societies and smaller lending institutions are a good alternative to the banks.

“But everybody also knows you’ll be penalised by the banks if you try to remove your loan from the bank and go somewhere else.”