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