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12 things Wayne Swan can do to tackle the Big 4 banks

Frank Zumbo

by Frank Zumbo

08 Dec 05:55am

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Filed under: Accc, Banking Regulation, Banks, Competition, Wayne Swan

31 comments

As the public anger against the four big banks continues, we wait with an air of expectation for Wayne Swan’s latest bank “reform” package to be announced.

And if all else fails, Swan might have to try this. Photo: Robert McKell

This is not Swan’s first “reform” package. He announced one before and while some may have been excited about that earlier package, any excitement quickly faded as that package fizzled and the four big banks continued to thumb their nose at the Federal Treasurer.

Until independent competition and the conditions that allow independent competition to flourish are restored, consumers will continue to be gouged by the four big banks. Here’s a 12 point plan that might help provide a coordinated and targeted approach to the restoration of independent competition.

1. Place the four big banks under the competition spotlight by requiring the ACCC to formally monitor the four big banks under our competition laws. This allows the ACCC to get answers from the four big banks on the key issues of costs, fees and interest margins;

2. Implement a seamless switching package to enable customers to move easily and quickly between financial institutions. Switching financial institutions should be as easy as switching phone and electricity providers;

3. Amend the new national laws against unfair contract terms to deal expressly with the issue of unfair fees and, in particular to ensure that fees don’t materially exceed the reasonable cost to the bank of undertaking the activity to which the fees relate;

4. Explore opportunities for Australia Post to offer basic banking services like those offered by postal services overseas. This could involve asking the Productivity Commission to (i) undertake a feasibility study into Australia Post offering basic banking services; and (ii) review the overseas experience with national postal services offering banking services;

5. Extend indefinitely the retail deposits guarantee for APRA supervised non-major banks and financial institutions. This would provide complete consumer confidence in credit unions, building societies and other smaller financial institutions;

6. Strong and ongoing backing to the securitisation market where, for example, residential mortgages can be bundled together by smaller financial institutions and on-sold to investors, including to the Federal Government, to raise new funds to lend out to customers. This should also include an assessment by the Productivity Commission of the feasibility of Australia adopting the Canadian model in this area;

7. Direct the Productivity Commission to assess the impact on competition within the Australian banking sector as a result of the removal of St George, BankWest, RAMS, Aussie Home Loans and Wizard as independent competitors. This would provide the Federal Treasurer with a clear basis for seeking to stop further mergers and acquisitions by the four big banks;

8. Direct the Productivity Commission to undertake a review of the ACCC’s current approach to assessing mergers and acquisitions within the Australian banking sector. This would put the ACCC’s approach under the spotlight to prevent the ACCC repeating its previous mistakes of not stopping the four big banks from taking out the competition over the years;

9. Amend our banking laws to outlaw any merger between the four big banks so as to ensure that the four pillar policy is given the force of law and can only be altered by Parliament. In short, the four pillar policy should be set in stone and only capable of being changed by Parliament itself;

10. The Senate Economics Committee request a report from the ACCC regarding the circumstances under which the ACCC would apply for a divestiture order under our competition laws to undo a merger that is subsequently found to substantially lessen competition;

11. Amend our competition laws to outlaw (i) a merger or acquisition that “materially” lessens competition; and (ii) any “creeping” or piecemeal acquisitions by a company with substantial market share that would lessen competition in a market.

12. Amend our competition laws to provide for a general divestiture power whereby a Court can, on the application of the ACCC, order the break-up of a company (i) having substantial market share; and (ii) where either the characteristics of the market prevent, restrict or distort competition; or the company has engaged in a pattern of conduct that is detrimental to competition and consumers.

Over to you Wayne, and good luck with tackling the four big banks.

Most commented

31 comments

Show oldest | newest first

    • S.L says:

      05:46am | 08/12/10

      I got a loan to buy my second business with one of the Big Four Banks in 2006. I wasn’t or ever had been a customer, I just walked in off the street. My first business I own with a partner and we were having a few expansion issues at the time and the bank our accounts were with wouldn’t “come to the party” so I contacted the other one"cold”. The business manager was more than accomodating and in fact (and to my surprise) said yes to the amount I requsted over the phone after a price was agreed with the original owner!
      Fast forward 1 year and my friendly bank manager gets a promotion. Replaced by and underling who can’t visit the gents without permission. Any request for refinancing to look at further expansion can now take weeks and my finiancial future is decided by faceless middle managers I’ve never met. Infact I managed to find one on the phone 6 months ago and he litterally s**t himself! Needless to say I’m looking for another bank….....

      Reply

    • Drew says:

      07:31am | 08/12/10

      Literally? What did that sound like on the phone?

    • Cat says:

      06:24am | 08/12/10

      Have you ever tried to switch phone or electricity companies? It IS just as easy as switching banks.

      Reply

    • Zander says:

      07:49am | 08/12/10

      #13 Educate people that there are many credit unions and building societies out there that are highly competitive and have many attractive products. If the sheeple are too silly to do their research then maybe a bit of free advertising will help.

      Most of your proposals seem to be ok. However I am skeptical about #6. We need to tighten lending critieria or else we’ll face the same problem the US had with bad loans made to bad people who couldn’t repay them which were bundled and sold to banks and investors. Hence the GFC.

      Also, divestiture laws would put a lot of doubt in the marketplace and destabilise things. You can’t just retrospectively change things you don’t like when many investors got in thinking it was a good deal only to have it go sour because the govt doesn’t like it. This would spook markets and could cause a mini-crash. Investment needs confidence.

      Reply

    • Sherlock says:

      10:37am | 08/12/10

      Too true. There is plenty of competition for the big banks. There’s no shortage of places who will lend you money and many of them at a better rate than any of the big four.

      Furthermore, this changing banks is hard is a load of rubbish. I changed banks a couple of years ago and it took me an afternoon to rearrange everything. Most of the places will let you change debit arrangements over the net or at least have the required form that you can easily download. Worst case scenario is that you actually need to call one or two places.

      I predicted the fall of these non-bank lenders. It was a no-brainer to see that their business plan was unworkable over the long term. These places spring up in good times but collapse like a house of cards at the first sign of any trouble.

      What the writer is suggesting here is a government backed artificial marketplace. This is dangerous in the extreme not to mention unnecessary. One of the big things that got Australia through the GFC was the strength of our banking system. Look at the yanks they had more banks than you could count and their system basically collapsed. Competition in the banking sector didn’t save them.

      It cost a considerable amount to get a loan on the books that’s why the banks try to lock you in for a minimum term. If people can easily and cost-free change mortgages at will the banks will increase their margin even further to absorb the expense.

    • Dash says:

      07:54am | 08/12/10

      Perhaps Swan shouldn’t have approved two bank mergers since becoming treasurer. And perhaps the ALP should look at it’s fiscal expansion spend-a-thon and inflationary policies (such as the carbon tax) which are both putting upwards pressure on interest rates. Rather than blame the banks, Swan should concentrate on the government’s policies which are contributing to the increased living costs of all Australians.

      This ALP is always looking to blame others (e.g. the banks, the builders, the insulation providers, the power companies). What about taking responsibility for it’s own actions. Stop driving up inflation and stop driving up interest rates. What happened to the promises of grocery choice, fuelwatch, cheaper better childcare and more affordable housing? This government promised to cut living costs and yet has failed to deliver and in fact, has achieved the opposite. It’s now looking to increase business costs through increased taxes which will just be passed on to the consumer.

      People are sick of the lies, the hollow promises, the stupid green deals and the waste of our taxes. Forget the banks, fix the problems within the ALP!

      Reply

    • Sherlock 534 says:

      08:14am | 08/12/10

      How can we trust the ACCC to do anything positive with the 4 banks, they have allowed this monopoly in the 1st place, and look how they are allowing Woolies and Coles to increase their market share.  The ACCC is run by beurocrats/lawyers/accountants who don’t understand business.  They understand theories but no practical application.

      Secondly, bank fees are only a small part of the problem when trying to get transfer to another Bank.  The Federal Government will have to get the State Governments to drop stamp duty on new loans with new banks..yeah that’s going to happen

      Reply

    • Rosie says:

      08:22am | 08/12/10

      Yeah Wayne Swann, the decision has been made for you, go forth and implement and show the public what you and the Govt are really made of!

      Reply

    • A dose of Reality says:

      09:08am | 08/12/10

      “6. Strong and ongoing backing to the securitisation market where, for example, residential mortgages can be bundled together by smaller financial institutions and on-sold to investors, including to the Federal Government, to raise new funds to lend out to customers. This should also include an assessment by the Productivity Commission of the feasibility of Australia adopting the Canadian model in this area;”

      This is the cause of the recent “Global Financial Crisis”.  It is also a honeypot for greed.  The “big 4” will be wanting this so bad…….

      It negates your whole argument.

      Reply

    • J says:

      09:14am | 08/12/10

      I don’t really understand why all this bank reform is making so much noise. We’ve just come out of the GFC very strongly and our banking system stood up to the biggest stress test the world has had. Many European countries are having to get huge bailouts that even their govournments can’t cover and huge banks have been collapsing yet we cuss out our banks for having good lending practices!

      We should be thankful that the RBA, the Australian banking sector and the regulators who oversee the industry have good solid processes in place. Don’t get me wrong, more competition is a great thing but there has been so much misinformation around banks of late that people feel like they’re being ripped off that of course they’re angry. It’s not the truth, they’re not getting gouged yet the media (ie. This article) keep pushing this line until it’s believed.

      Reply

    • Rosie says:

      10:41am | 08/12/10

      J it because the Gillard Govt is trying desperately to find something, anything to justify their position as supposedly governing this country.

      Just finished watching Rudd and I can’t believe I actual felt sorry for him when he cried like a baby! No conscience whatsoever, just like Swann, no conscience about the first bank reforms that disappeared into oblivion - no problems just bring out more reforms but don’t bother about the implemtation. Rudd, no worries, “its like water off the duck’s back.!” Wikileaks!

      For the time being we just wait and wait and wait to see some kind of governance while the Gillard Govt play the blame game, defend and justify all their misdeeds etc.

    • Andrew says:

      10:55pm | 08/12/10

      Got it on the nose, Rosie.. Australia’s interest rates are now “above average” historically, while in the rest of the developed world interest rates are hovering around the 0% mark.  Granted, our rates have always been slightly higher, but the margins are well beyond what they’ve ever been in the past.  The reason is simple - inflation is getting out of control, and the RBA has no choice but to continue raising rates in response.  Why is inflation out of control?  Because government spending has increased massively, wages are rising too quickly, and the cost of living is going up in response (yes, it’s a direct link - if people have to pay their staff more, they have to charge more for their products and services).  This is completely expected, and was inevitable since the 2007 election result.  We should probably all be thankful that the GFC came along when it did, or we’d be paying 12% on our mortgages by now..

    • Mouse says:

      09:23am | 08/12/10

      So Swan has spoken!  When is this government going to do its jobs, like running the country? Swan is not a banker, he’s not even a treasurer, so how can he tell the banks what to do. They are, after all, a private business. Is he going to start on Woolies ands Coles next? They are big & mean and make a profit at the people’s expense too! Labor get Joe Average Citizen all worked up about stuff and fill their heads with crap to make them seem like they are the good guys, only looking out for you, then cry like babies when it doesn’t work. Swan is good at sounding indignant but pretty useless when it comes to actually getting things done.  If he can explain to me the reason that people shouldn’t be responsible for finding the best deal for them, from whoever there is available, then I will have his child.

      Reply

    • Splinter says:

      09:35am | 08/12/10

      Nationalization through the back door, methinks

      Reply

    • Dan says:

      10:25am | 08/12/10

      Nice picture - Don’t mess with the Rabbitohs!

      Reply

    • jane wallace says:

      10:26am | 08/12/10

      close the big 4 four banks down and introduce nationalisation of banks.

      Reply

    • don says:

      10:31am | 08/12/10

      I think you missed the point entirely, or your proposals will just end up with more bureacrats and toothless regulators and long and drawn out court cases. I propose a far easier solution:

      The government significantly reduces or eliminates the taxation on savings, or alternatively indexes taxation on savings to inflation so that you get some return. At the moment for people on reasonable incomes, saving your money is pointless as you lose out from inflation as well as taxation.This essentially pushes money that you would normally save into either shares or the property market. By making savings a more favourable option it would take interest rate pressure off the banks as well as potentially reduce prices on property and shares.

      Reply

    • Ted says:

      10:47am | 08/12/10

      Here’s a 1 point plan: people suck up the fact that there is a cost involved with borrowing money.  Done.

      Reply

    • Kevin says:

      12:11pm | 08/12/10

      There is only 1 thing that Gimp of a man Swan should do…...RESIGN!!!

      Reply

    • Ross says:

      12:27pm | 08/12/10

      Why not make the big 4 merge into 1 problem solved .You would be able to rid yourself of 3 lots of executives and scare the last lot standing into behaving themselves. Plus the remaining executives would have there workload trippled which would mean they would start to earn there money .

      Reply

    • michael j says:

      12:40pm | 08/12/10

      I don’t think the banks are doing anything wrong
      if they are what?
      they are only following accepted international
      practices,and without getting involved in a GFC
      that some people are starting to go without food
      in this country,
      is the goverments fault not the bloody banks
      they should have kept presure on the big miners
      they are the ones who are realy running Australia

      Reply

    • peter says:

      12:42pm | 08/12/10

      Swan was responsible for the big 4 bank’s consolidation of their position. He gave Westpac permission to gobble up St George, Commonwelath to take over Aussie and Vizard and many smaller operators ceased under his stewardship. It was under his stewadship that big bank’s deposit were gauranteed and every other entity suffered as there was a mass exodus of funds from non-bank financial sector. Because of what Swan permitted, that is why the banks have so much market power. Anyone upset with the banks today should be calling for Swan’s head on a chopping block. he is not part of the solution - he is part of the problem.

      Reply

    • Richard says:

      12:43pm | 08/12/10

      1. If you think there is insuficient focus on competition already, you are livng under a rock.  This is meaningless.  2.  Nice idea but the problem is one of perception of difficulty not actuality.  Functionality would have to be forgone or significant costs all because people can’t be bothered.  3.  Fees are a disclosure issue.  The non-banks charge the highest fees.  This is not a sensible idea.  It will worsen the position for existing competition.  4.  This has not worked in NZ and there is no evidence it will do anything here other than require the tax payer to subsidise people who can’t be bothered going into their branch for 30 minutes.  If they price below market it is unsustainable.  If they do anything else they are irrelevant.  7. It would be a start if you could define what the impact of the alleged lack of competition is.  The RBA controls the end rate to borrowers. Having an enquiry - you should be working for Kevin Rudd.  8. You think there is some basis required for the ACCC to decline major bank mergers?  You are obviously writing from either deep freeze or another country.  What’s the point?  9.  See above although I don’t see what is different about banks to any other industry and why this is required.  If you do this you certainly don’t need to do 7 or 8.  10.  Something to be considered going into the merger.  If the ACCC can’t get it right then who is going to second guess them - you?  11. The ACCC can already prohibit mergers.  Expanding the reasons for which they can do this is hardly relevant.  Also, if you do 9, how is this relevant?  12.  See comment on 11.

      So basically you are at 2 out of 12 and I will bet you have not the first idea about how to do these three things.  The Canadian model would be a disaster for any potential new entrant.  I think you should get out and work in banking before you comment next time.  The irony is that there actually are things that could be done to help competition (NOT PRICE) but they are missed in the stream of rubbish like the above.

      Reply

    • jf says:

      06:54pm | 08/12/10

      1. You can’t possible believe that they aren’t under the competition spotlight. If the ACCC doesn’t already “formally monitor the four big banks under our competition laws” the what do our competition laws say and what does the ACCC do?  However, having just organised a home loan and being convinced that the competition for my loan was strong, I’m sure that the banks would welcome the opportunity to provide answers to the ACCC in relation to the “key issues of costs, fees and interest margins”;
      2. Nice in theory. Very difficult in practice. Also, do you really want people to be so flippant about such large transactions? The potential unintended consequences of this could be significant.
      3. Study after study has shown that the more choice there is and the greater the disclosure the more difficult people find it to make a decision. However, I do agree that if banks (or any large organisation) breaches their contract then they should cop it. Thus, we have another issue. The more disclosure we require, the more complicated the contracts. The more complicated the contract, the less likely people are to read it. The less likely people are to read it the more likely it could be unfavourable to them.
      4. I’m not sure of anywhere that this has worked. However, if they are cheaper than the banks, it is, by definition being subsidised by the taxpayer (the people we are trying to reduce costs for). If it is the same or higher cost, being government owned, it is almost certainly less efficient and costing the borrower and the tax payer more. Terrible idea.
      5. Funded by the taxpayer. Would almost cost as much as it would save.
      6. Do you mean NINJA loans?
      7. And what if it didn’t provide a clear basis for “seeking to stop further mergers and acquisitions by the four big banks”. Or are we to accept this as a foregone conclusion.
      8. Another review. Ripper.
      9. Why?
      10. So what is the role of the ACCC again? Why not disband this obviously toothless and irrelevant entity.
      11. Wouldn’t this be something that the ACCC would look at anyway? 
      12. Not sure about this, but I did understand that the legislation enable this to happen.

      So, 12 things that are either already in existence or practically un-implementable all based on supposition and accepted wisdoms.

      Another thought is for the policians and the financial media to act with integrity and take a responsible and thoughtful approach to informing consumers about the way to get the best from the banks. Boring, lacking in short-term populism sure. But effective, you bet.

    • Dazeddazza says:

      12:56pm | 08/12/10

      Dream on if you think Swan has the intestinal fortitude to seriously take on the banks.    He just doesn’t cut it.

      Reply

    • Bruce says:

      02:38pm | 08/12/10

      Yep ! Create a 5th tier, so the BIG 4 can wait until they are profitable, then buy them out.

      Reply

    • Jotun says:

      04:29pm | 08/12/10

      I have some better ideas Frank.

      1. Don’t create an artificial playing field where the big banks are not allowed to fail, but are also not allowed to grow.
      2. Take the deposit guarantees away the Government are currently providing.
      3. Stop faux-bashing businesses which are integral to the economy.
      4. Read the facts that have been intermittently presented to us which show that borrowing costs for the ‘gouging banks’ have in fact increased markedly, and that if the baks hadn’t increased their interest rates above RBA increases, the Reserve would have raised theirs further anyway.
      5. Place higher scrutiny on non-bank ATM providers through the ACCC if you are so concerned about the high costs associated with ATM services, especially in rural and remote areas.

      Reply

    • Dr B S Goh says:

      09:38pm | 08/12/10

      CBA used to be the worker’s bank.  When my children were young they all had accounts with CBA. Now what? Its may be the worst of the big four. Add the firth bank and will become the same as CBA.

      The only way forward is to bring real competition in the industry. Encourage foreign banks to take over two out of the four big banks.

      At the same time the Govt should stop wasting our civil servants time and our money. Say NO to the proposed TAKEOVER of the Australian Stock Exchange, ASX , by the Singapore Stock Exchange. ASX and SGX had joint ventures allowing trading of each others listed companies.. It was a failure. There is NO case that the TAKEOVER of ASX by SGX will bring more liquidity etc to ASX.

      ASX had tried to takeover NASDAQ and it failed because of valuations. These managers of ASX cannot make real strategic decisions. The combined NASDAQ and OMX in Europe and ASX in Asia would have built the first truly global chain of stock exchanges.

      The present laws on ASX limit one share holder to no more than 15%. There are many reasons for this law. Please our dear PM stop wasting our civil servants and our money. Say NO to the proposed takeover of ASX by SGX. Instead do encourage the PM of Singapore to direct one of Singapore’s banks to mount a takeover of one of our four big banks and create real competition in the banking industry in Australia.

      Reply

    • TrueOz says:

      10:00pm | 08/12/10

      Here’s a new one for you Frank;

      How about the government gets the f#@k out of the way and permits the market to decide who should, and who should not be in the banking business. Of course, that would put mental lightweights like yourself out of business completely - no more consumers to “advocate” for.

      You think you’re so bloody smart - but you’re just another man who fears the more able competitor. You suck!

      Reply

    • Joolya Ducksbum says:

      10:43pm | 08/12/10

      UUummm….before he learns the twelve thing he needs to do, he needs to learn to read first. Then learn how to do sums.

      Reply

    • SteveKrik says:

      08:04am | 09/12/10

      12 years of nothing by Costello and Howard to put controls on the banks. 3 years of labor and all the problems are their fault?  I think not.

      Reply
 
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