As the four big banks continue to act as a law unto themselves it’s time for Wayne Swan to match the tough talk with tough action, especially in relation to our competition laws.
We have some of the weakest competition laws in the world and that’s why we’re now in this mess with the four big banks.
The simple reality is that Wayne Swan and the ACCC have allowed the four major banks to get as big as they. The ACCC and, ultimately Swan failed to stop Westpac from taking over St George and that was after years of failing to stop the four big banks from taking over the smaller banks.
Let’s make no mistake that Westpac’s takeover of St George was the beginning of the end for real competition. The St George takeover preceded the global financial crisis and really became the straw that broke the camel’s back in terms of real competition in the banking sector.
St George had the makings of a fifth pillar and could have become a major bank in its own right. By failing to stop Westpac from taking over St George, the ACCC and Swan opened the door for the four big banks to take a stranglehold over the Australian banking sector.
Significantly, Swan and the ACCC also allowed BankWest, RAMS, Aussie Home Loans and Wizard to be taken out in fairly quick succession as independent competitors to the big banks. In this regard the global financial crisis became a convenient cloak for the big banks to quickly neutralise all the very players that had been so effective in keeping the big banks honest over the years. And we are likely see the same with the wealth management sector if no action is taken to stop the big banks spreading their tentacles in that direction.
Now let’s be clear that big banks are simply doing what they have been allowed to get away with over the years. The old saying of “give then an inch and they will take a mile” so aptly describes what’s happening with the big banks. Of course, there are those with self serving financial reasons for wanting the big banks to get even bigger, but someone needs to stand up for the struggling Aussie families who are being gouged by the big banks.
Let’s not forget that a reduction in the number of independent competitors allows the remaining players to charge much higher prices for goods or services than if there were more independents in the market to keep prices lower. Clearly, the more independent competitors in the market, the lower the prices in that market as those independents compete vigorously for your business.
With fewer players in a market they act as a cosy club with a vested interest in keeping prices as high as possible. Sadly, that’s exactly what’s happening with the big banks. They are merely acting as a cosy club where they shadow one another on interest rates and tell us how tough life is for them since their costs of funding have gone up.
Well, all our costs of living have gone up and every time the big banks push up interest rates above RBA increases our cost of living goes up even more. What are struggling Aussie families supposed to do when the big banks are quick to push up interest rates so that they can continue to make record profits?
Now there’s nothing wrong with the banks making a profit. It’s only where record profits are being made from the blatant abuse of the big banks’ substantial market share that we should be worried. In those circumstances, record profits are just proof that both banking competition is weak and that our competition laws are failing to keep a lid on interest rate hikes to the significant detriment of consumers.
So what can Swan do?
To begin with he needs to do something quickly to make it easier for customers to shift banks. The original switching package announced by Swan has been a real fizzer with minimal take up of the package. The media reports have it at little over 1,800. That’s a tiny drop in the ocean and Swan can obviously do better. One would hope that for the sake of competition and consumers Swan makes switching banks as seamless as possible with the best outcome for bank customers being an ability to simply go the new bank, sign on the dotted line and have the new bank do all the work with the old bank. It would be a bit like what happens when switching mobile phone or electricity providers.
We also need to deal with unfair exit fees and other unfair contract terms as a matter of urgency. This is where ASIC needs to get off its backside and move quickly to enforce new laws against unfair contract terms which came into effect on 1 July this year.
Stronger competition laws and an ACCC ready to effectively enforce existing laws are also essential. For starters, the ACCC should be using its existing powers under the new cartel laws. This means that ACCC could with the help of the Australian Federal Police secretly tap phone calls and meetings amongst bank executives and/or between the Australian Bankers Association to see if the banks and the ABA are privately discussing interest rates. The banks and the ABA would be treading on very dangerous ground under our existing competition laws if they were privately discussing interest rates.
Next, Swan could formally declare banks under the prices surveillance part of the Trade Practices Act. The Government has done this before with unleaded petrol. A formal declaration gives the ACCC the ability to formally monitor interest rates and bank profits and to report on, for example, a quarterly basis. Once there is a formal declaration, the ACCC is able to formally demand that the banks provide the ACCC with all relevant information about interest rates and profits.
As for new competition, Australia Post could be given a banking licence or explore entering into a joint venture with a non-major financial institution to offer a basic deposit account, credit card and mortgage facility. This would be a big plus for rural and regional customers given Australia Post’s extensive branch network.
Encouraging new players into the banking sector would also go a long way to promoting real competition. We are seeing players like Virgin Money lifting their presence in the market and more should be done to encourage and support other new players.
Finally, Swan could extend the retail guarantee for the non-major banks and financial institutions indefinitely. That would maintain confidence in the smaller banks and credit unions. Credit Unions in particular offer great deals to their customers and Swan could do much more to support them.
So Wayne it’s now over to you. And just remember that if you fail this time all Australian consumers will pay the price for years and they may remember all the pain at the next election.
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