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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

break up the banks? « Previous | |Next »
November 8, 2010

If the global financial crisis proved that Australia’s bank regulation, and the Australian Prudential Regulatory Authority (APRA) itself, is in pretty good shape, then the aftermath of that crisis indicates that the government's support for the big four banks (a fee structure for the bank guarantee for an oligopoly), has been, and continues to be, is at the expense of competition in the financial system.

As Milind Sathye points out at Online Opinion

The four major banks - the ANZ, Commonwealth, NAB and Westpac - dominate the banking system. They hold 77 per cent of total banking assets, 82 per cent of deposits, 83 per cent of total loans and 88 per cent of home loans. In other words, Australian banking is significantly concentrated.

Australia's concentrated banking market is at the heart of the issues raised by the critics of the banks.

LeakB4banks.jpg

If the oligopoly cannot be broken up--ie., a demerger of Westpac and St George and of Commonwealth and BankWest---then there needs to be increased competition in a market economy--ie to provide incentives to consumers of the major banks (eg., small exit fees) to switch to smaller banks or credit unions and building societies.

Criticism of the banking oligopoly is not just populism or bank bashing. As Milind Sathye points out in The Age:

The major banks consolidated their market power due to the crisis. The government policy in the crisis actually helped the big banks consolidate market power. The fee structure for the bank guarantee put in place by the government helped banks make record profits at the cost of the taxpayer. It also discriminated against community institutions such as credit unions.

It is the structure of the financial system that is flawed. Secondly, if Australian taxpayers are, in effect, going to stand behind the banks, strengthening the sector’s credibility in the marketplace, they should be compensated for doing so. Let's put a levy on the bank's assets to trim some of their fat.

| Posted by Gary Sauer-Thompson at 8:43 AM | | Comments (6)
Comments

Comments

re:

to provide incentives to consumers of the major banks (eg., small exit fees) to switch to smaller banks or credit unions and building societies.

The bank's exit fees should be called called exit fee gouging. The fees are far greater than the costs of administration

interest rates on credit cards are another example of gouging. These rates sit around 20%!

"If the oligopoly cannot be broken up ... then there needs to be increased competition in a market economy..."

I am so tired of hearing "increased competition" as the only possible solution to the growth of giant, "too big to fail" firms.

J.K.Galbraith once said (I can't remember the context) "the trouble with competition is that in the end somebody wins". That's very true, and attempting to recreate competition in a world where it has played out and died is just silly. What we can do is (a) regulate more thoroughly, and/or (b) institute Govt. enterprises to provide benchmark services at benchmark prices.

Funny how nobody ever suggests either of these policies.

gordon,
'increased competition' can include the Post Office being transformed into a bank that provides benchmark services at benchmark prices.

There is talk of this. It will probably remain talk.

Pollbludger

Essential Research poll Nov 1.
[I can't access the poll itself].

" ... 62 per cent would support the establishment of a government-owned bank against only 17 per cent opposed"

Ironic isn't it?

Janet Albrechtson in her Let's hear the positive story from the banksspins for the baking oligopoly:

it's depressing to listen to the simplistic attacks on banks. It's frustrating to see how quickly Australians seem to forget that Australia's AAA-rated banks led the world in best practice during the financial crisis. No bank failures here. No bank bailouts either. Every Australian who has superannuation is a beneficiary of our well-run, profitable banks. There is only one thing worse than a profitable bank. It's an unprofitable bank. That said, if Australia's big four banks continue to play the policy and politics of this debate as poorly as in the past, they will have themselves to blame for Labor's idea of banking reform.

According to Albrechtson, the big 4 banks got through the GFC all by themselves.

Albrechtson does not mention of the fact that the big 4 were bailed out by their need to use the government credit ratings and guarantees to borrow funds

Albrechtson is spining for the banks.