* Competition regulator wants power to curb bank collusion
* Regulator: concerned over banks interest rate signalling
* Banks says such powers may lead to misinformation (Adds bank lobby group comments)
By Narayanan Somasundaram
SYDNEY, Oct 22 (Reuters) - Australia's competition watchdog has joined calls for closer regulation of major banks, suggesting it be given more power to deal with any collusion among lenders when setting interest rates, a newspaper said on Friday.
The four major local banks, which control more than 80 percent of the home-loan market, have become the target of a political campaign aimed at curbing their power and at generating cheaper mortgages after a string of interest-rate hikes.
"We are starting to get concerned about price signalling," Australian Competition and Consumer Commission Chairman Graeme Samuel told the Australian Financial Review on Friday.
Samuel did not accuse the big four of outright collusion in setting rates, but said he lacked the power to tackle price signalling, a subtler form of collusion whereby banks publicly indicate to rivals their future interest-rate movements.
The major four lenders are National Australia Bank, Commonwealth Bank of Australia Westpac Banking Corp and Australia & New Zealand Banking Group.
Samuel signalled he would support new powers preventing banks from price signalling and noted that some overseas jurisdictions already had this power.
The Australian Bankers Association, which represents 15 lenders including the big four, said curbs on price signalling could lock them out of public debate on their funding costs.
"Constraining banks and not the other participants in public debate will misinform that debate and will mean that the media and other commentators are unable to present an informed and balanced view," the lobby group said in a statement.
BANKS IN FIRING LINE
The regulator's intervention follows local and international efforts to tighten control of banks, which were blamed for igniting the world's worst economic crisis in 80 years. Britain has slapped a new tax on bank balance sheets.
Though Australian banks weathered the crisis well, with the help of government guarantees, they have caused disquiet by gobbling up rivals and largely ignoring government calls to limit their rate rises to the pace set by central-bank tightening.
On Thursday, the conservative opposition called for curbs on bank profits and lending rates, saying controls were needed to stop them gouging their customers..
Interest rates are a major political faultline in Australia, where about two-thirds of voters own their home.
Treasury officials are also worried about the big four banks' oligopoly and hinted that further action could be taken to make it easier for borrowers to switch between them, the Review said.
Most of the four big banks have already raised their lending rates by a larger margin than the central bank, which began tightening last October.
And over the last month they have hinted they may have to move faster than the central bank's official cash rate increases to offset higher funding costs that they say are hurting margins. (Reporting by Narayanan Somasundaram; Editing by Mark Bendeich)