Banks have argued it is too hard to conduct full checks on borrowers but Commissioner Hayne gave this short shrift in his report,saying it was"not difficult"to look at a customer's income and spending on their bank statements - which are often held by the same bank they are seeking loans from.
The commission also questioned whether front-line staff should receive commissions for selling financial products,and if senior managers and executives’ remuneration should have their pay tied to financial performance,potentially limiting the pool of loans by reducing incentives to approve them.
Shadow treasurer Chris Bowen dismissed concerns from the industry that any crackdown on bank pay structures or tougher regulation would affect economic growth.
"The idea that a poorly regulated financial services sector or the wrong bank remuneration structures is good for the economy in the long run is fanciful,"he said.
Treasurer Josh Frydenberg said the interim report made it clear that the financial sector must start putting people before profits.
“My focus in responding to the final report will be on doing what is necessary to avoid the conduct in question happening again,"he said.
“While at the same time,making sure whatever steps are ultimately recommended,they are implemented in a manner that does not undermine consumer and business access to financial services and credit,stability of the financial system,competition or economic growth.”
UBS analyst Jonathan Mott said the commissioner's final report was likely to recommend that banks conduct full income and expense verification to assess a borrower's financial position.
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Mr Mott said that the royal commission raised the risk of
the current credit squeeze turning into a"credit crunch".
"We believe the Australian banking sector is facing a period of substantial and sustained earnings pressure which is likely to last several years,"he said.
"We estimate that a move to full expense verification is likely to reduce maximum borrowing capacity by[about] 30 per cent."
The banks'recent tightening of expense assessments had already cut borrowing capacity by 7 to 10 per cent for owner occupiers and by about 20 per cent for property investors.
"Therefore there is likely to be a further substantial tightening in maximum borrowing capacity to come,"he said.
The big four banks'shares jumped on Friday after the interim report was released with no findings,referrals or recommended charges.
But they came under pressure on Monday. Commonwealth Bank fell 1.4 per cent to $70.42,NAB fell 0.7 per cent to $27.60,ANZ fell 1.6 per cent to $27.73,and Westpac fell 1.5 per cent to $27.50,on a day when the ASX200 was down 0.60 per cent.