After much discussion and posturing in the media, the banking reforms to increase competition in the Australian banking market were announced on Sunday December 12th. After much hype around fundamental restructuring and the building of a fifth Pillar, the reality has been little more than tinkering around the edges and is likely to have little impact on competition in the market, with even the danger of hurting the smaller players. Philosophically the reforms announced are more about helping the smaller players rather than restricting or hampering the Four Pillars. Fundamentally there are really two changes: measures to improve the access to wholesale funding and secondly measures to help consumers switch mortgages. Interestingly the measures to increase liquidity in the market including increased government funding of securitisation and the ability to issue covered bonds, both of which in their extreme form brought about the financial crisis in the first place.
There is one reform that gives the regulator more teeth and that is the ability to prosecute in the case of evidence of price signalling by the Four Pillars i.e. acting as a cartel, however how easy it will be to prove is highly questionable.
As reviews of regulation to improve competition in banking markets carry on across the globe, what are the lessons that those conducting those reviews can take from the Australian reforms?
Firstly for all the macho talk about breaking up the big banks, when the practicalities kick-in it is all a lot more complicated, expensive and difficult to do than say. Secondly, the focus should be more on helping the smaller players compete than punishing, and being seen to punish, the market leaders. Finally that market concentration does not mean a lack of competition, particularly when there is a similar level of scale amongst the big competitors.