Criticism has come early, with bank workers' union representatives claiming the Government has something to hide by making sure the inquiry does not go ahead.
Results of a survey showed overwhelming support for an inquiry.
Such an inquiry would have proved fruitless, nevertheless, as banks have already claimed their margins are being squeezed because they have to find funds offshore at higher interest rates and that their customers are demanding higher returns from premium investments.
But the perception that the Government is stepping back from an inquiry will give rise to claims National is supporting big business at the expense of mum and dad voters.
A three-sentence statement from finance and expenditure committee chairman Craig Foss alerted the public to the majority of the committee voting against initiating an inquiry into the relationship between the official cash rate and short-term interest rates and recent banking practices, including a particular focus on retail interest-rate margins.
New Zealand Manufacturers and Exporters Association chief executive John Walley said yesterday 86% of respondents of a survey conducted in the last two weeks of June supported an inquiry into the financial sector.
The survey also found that:
• 63% of respondents reported their bank had increased the margins they paid on credit facilities.
• 57% reported their bank had tightened covenants associated with credit facilities.
• 55% reported their bank had increased charges associated with their credit facilities.
• 27% reported their bank had tried to increase their credit facility costs but maintained existing arrangements when they complained.
• 46% of respondents reported their bank had used the opportunity of any change of credit facilities to increase cross guarantees.
"These results show clear and deep dissatisfaction with the banks - not universal, but very strong. There is overwhelming support for a wide-ranging inquiry into the financial sector and its impact on the real economy," Mr Walley said.
The issue was more complex than just looking at the gap between the OCR and retail interst rates.
Part of the discussion should involve a debate on the role Kiwibank might play in driving competition in the mainly foreign-owned banking sector, he said.
"The attitude from the majority of the select committee seems to be that the Reserve Bank will look after interest margins, but the issues are much wider. Problems caused by monetary policy and tax imbalances lie at the very heart of the economic crisis and its solution," Mr Walley said.
Finsec, the bank workers' union, said the decision not to proceed with an inquiry showed the Government was either impotent or on the side of the Australian-owned banks.
"The Government has abandoned the people who elected them and sided with the Australian bank CEOs and shareholders," Finsec campaigns director Andrew Campbell said.
New Zealand taxpayers were underwriting the banks' business through the government guarantee schemes while the banks continued to make billions of dollars.
However, the thought of the taxpayer having a look at how the banks set interest rates was seen as too much trouble, he said.
