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Central bank governor Glenn Stevens says he doesn't think Australian bank profits are excessive.
The head of the Reserve Bank told a parliamentary economics committee on Friday said that it should not be a surprise that Australian banks were doing better than others around the world.
"There are certainly big challenges for banks in many countries ... it is not a high bar to clear," Mr Stevens said.
"As far as I know the return on equity to bank shareholders is certainly good but there are various parts of the listed sector where it would be similar.
"So on that test, I'm not sure it would be obvious that profits are excessive, that would only be one test of course."
Asked whether there was a lack of competition among Australian banks, Mr Stevens said the industry's growing focus on deposits as part of their funding was a factor that was often overlooked.
"In assessing competition, it's perfectly fair to look at the provision of mortgages and, for that matter, business finance. But we shouldn't neglect the other side of banks' balance sheets," he said.
"There is a lot of competition to get deposits," Mr Stevens said.
"So the depositors, with a bit of shopping around, enjoy quite considerable competition for their money."
Mr Stevens said the federal government's guarantee of Australia's banking system has been "a nice little earner" for the Commonwealth.
In late 2008, the government announced it would guarantee wholesale bank debt and deposits of up to $1 million - later reduced to $250,000 - to restore confidence during the global financial crisis.
He said the government's guarantee of wholesale bank debt had netted the Commonwealth about $4 billion in fees.
"They were quite well paid for the risk they took," Mr Stevens said.
Banks were charged fees for the wholesale guarantee but the guarantee on deposits was provided free of charge.
However, Mr Stevens said he has no problem with the government charging for the deposit guarantee.
"If the argument is that there should be a charge for the deposit guarantee, I personally am not adverse to that," he said.
Mr Stevens told the House of Representatives Standing Committee on Economics that the government's guarantees covered about $980 billion in debt and deposits - or about 70 per cent of Australian gross domestic product.
Mr Stevens said it was never likely that the government would have had to pay out that amount.
Based on information provided by and with the permission of the Western Australian Land Information Authority (2013) trading as Landgate.