Finally, I will draw out some implications of the Government’s recent financial system policy announcements for competition in banking and payments. State of the banking industry The banking system remains healthy overall, but banks are under strong pressures from new competitors, the cost of systems development and shifts in the structure of financing.
Interest margins have been squeezed further over the past year, both by the continuing, intense competition in home and corporate lending and by the low (and falling) levels of interest rates. Domestic net margins have fallen to just under 4 per cent for the major banks (compared with 5 per cent in the late 1980s), and to around 3 per cent for the regionals.