Two small words in David Murray’s Financial System Inquiry final report stretch credulity: right up front, on page xvi of the executive summary, it states that the level of competition in banking is “generally adequate”.

That would surprise many of us who fear Australia’s banking system is a cartel of the big four, which between them control the vast bulk of our savings, loans and investments — especially after the GFC increased the market share of the institutions deemed too big to fail, which were propped up by government guarantees.

During the global financial crisis and its aftermath the big four’s interest rates moved in lockstep — particularly on the way down, when the banks took their own time passing on the Reserve Bank’s emergency rate cuts –justified on the basis of a somewhat misleading argument about the rise in funding costs in tighter wholesale debt markets. The truth was that the spread between the interest rates banks paid and charged — the all-important net interest margin, the biggest driver of bank profitability — actually widened over the course of the GFC.

This profit-grab was tolerable while there was a tacit acceptance banks needed to recapitalise — we all have a stake in financial stability, after all. But then-treasurer Wayne Swan was concerned that bank CEOs were wheeling the “higher funding costs” argument out so often that he extended the Australian Competition and Consumer Commission’s anti-price-signalling laws to cover the finance sector. (However, as Crikey noted here, the laws have never been used and may yet be abolished in the competition review.)

Then-shadow treasurer Joe Hockey promised an inquiry on the basis Australians were not getting a “fair go” from banks making record profits, and the very first bullet point in the Murray inquiry’s term of reference calling for new policy options sought recommendations to promote a competitive and stable financial system.

Mission not accomplished. A particular casualty of diminished bank competitiveness in the wake of the GFC was small business, which suffered rate hikes bigger than any other category of lending. This 2013 RBA paper found:

“ … there has been a noticeable increase in the range of spreads charged for business loans… [this] is likely to reflect an increase in the sensitivity of banks to the perceived risks involved in different types of business lending … with a reduction in competition for potentially higher-risk business loans over recent years.”

As Crikey has reported previously, former ANZ director John Dahlsen accused the big four banks of collusion in a submission to the Murray inquiry — minimising downside risk obsessively and ignoring unsatisfied demand.

As Dahlsen told the ABC’s 7.30 last week:

“I think there are sectors that are being left out. The figures show quite significantly that whilst the mortgage loans have risen, the loans to small business and business generally have dropped.”

Yet David Murray’s final report makes no specific recommendations on access to finance by small to medium enterprise, relegating SMEs to an appendix, while making recommendations to regulate (and thereby facilitate) crowdfunding and peer-to-peer lending that have been welcomed in the small business sector but are a questionable substitute for bank finance.

Murray’s comments at the press conference on Sunday were revealing:

“The truth of the matter here is that small businesses are riskier than some other businesses. We spoke to people around the world at initiatives that governments have put in place to try and deal with this. Generally, behind the scenes people are not — don’t find those compelling or solving a lot in the long term.”

In other words, small business is on its own.

Robert Mallett is the immediate past chair of the Council of Small Business of Australia (COSBOA) and hosted a forum in Canberra last October on access to finance for SMEs. He welcomed Murray’s recommendations on crowdfunding this morning but told Crikey that access to finance was an ongoing problem: “It’s a hidden problem because more small businesses than most people realise use their credit card for their short-term financial requirements.

“It’s much easier to take out a $30,000 credit card at 18% interest rates … than go to a bank and argue the toss with somebody who doesn’t really know your business.”

Many small businesspeople can only get access to larger loans by putting their houses up as security, and yet they find themselves paying higher interest rates than their own workers, who have no other source of income than the very same business. Said Mallett: “I pay a significant premium on an interest rate than an employee of mine to get a house loan, and yet they’re working for me!”

Mallett concedes small businesses need to lift their financial literacy and many do not have their information as up to date as they should have.

Australian Bankers’ Association chief Steven Munchenberg agreed business lending was a “challenging area” but the lobby group was working with small business organisations to give businesses “tools that will increase their chances of being successful when they talk to a bank”.

“Banks do have plenty of money to lend to small business. It’s not always on the terms and conditions that small business would like, and there are clearly issues out there…some of [those] are still legacy from when there were real concerns during the GFC.”

The broader problem for Australia is the missed opportunity for new ventures, combined with the increasing over-reliance of our banks on home lending — now constituting roughly two-thirds of all loans outstanding, up from less than half a decade ago. Even Murray recognises housing now represents a “systemic risk” to the financial system.