The Nature of Competition in Australian Retail Banking

Abstract

Emerging rather less scarred than many from the most recent global financial crisis in 2008, Australia has a banking and finance industry evidencing long-term stability, but moderate to high concentration as a result of long prevailing policy. In 2015, whether that level of concentration signifies less than desirable levels of competition is very much a current issue for policy makers. If the Australian Government’s ‘four pillars’ bank policy is the cornerstone of the banking industry structure as it now stands, it is hardly uncontested as a ‘good thing’. As well, in a post-GFC climate of concerns over the public benefits of growth and prosperity that ride on private enterprise in banks, whether the public purse can or should support the mistakes or misjudgements of private enterprise banks renews the perennial governance challenge for elected government and regulators - setting clear policy objectives and then regulating effectively to those ends. In common with other advanced economies, the size and influence of the financial services industry in Australia means that policy makers have their work cut out to remain independent in forming their opinions. Moreover, policy makers are with faced with the competing interests of an industry characterised by the fact of homogenous business models and highly domesticated risk profiles, and the possibility that diversification in the economy may be undermined by insufficient diversity in banking that, in turn, produces less than vibrant competition. Of course, there is also the effective certainty of a future financial crisis of some kind. As a contribution to ongoing debate, this working paper discusses retail banking in Australia as a platform for Australia’s long-term prosperity from business and wellbeing in households.