ACCC supports bank competition inquiry
(18 September 2019 – Australia) The Australian Competition and Consumer Commission (ACCC) has expressed support for a new inquiry into banking competition.
ACCC Commissioner Rod Sims is in favour of the introduction of an Australian Treasury led inquiry into competition in the banking sector speaking before the House of Representatives’ standing committee on economics.
The ACCC is aware of the extent of ‘inquiry fatigue’ among major bank CEOs who have recently undergone a heightened period of turnover along with their senior management teams yet confirmed that the issues are sufficiently compelling to warrant a meaningful review. Two longstanding and highly significant competition issues is the capital advantage enjoyed by large banks from using an internal model to calculate their risk-weights, as opposed to the standardised approach imposed on smaller lenders by the prudential regulator in addition to cheaper funding available to the Big Four because of their higher AA credit ratings.
Pointing to previous research conducted by the ACCC, Mr Sims claimed that banks ‘don’t compete enough’ and that a lack of competition in the sector had contributed to mistreatment of customers identified in the recent Hayne banking royal commission into misconduct in the sector. The corporate watchdog would examine the lack of price competition in banking and why the Big Four seem to be able to hold their market shares and continue to earn attractive profits without too much disruption from their smaller rivals.
“There are competition issues and you can think about the timing that you can deal with them, but I think they need to be dealt with” Mr Sims said. “They seem to want to position themselves roughly in accord with each other. That’s not surprising because, if one starts a price war, the expectation is the others will respond so they will all lose money. When you have a lot of similarly-sized players in a well-established market with common business systems, you often get this sort of behaviour” he added.
“The enduring solution to concerns about the banking market is action to promote competition. We don’t have sustainable banking competition at the moment. A lack of competition can contribute to inappropriate conduct by firms, and insufficient choice, limited access and poor-quality products for consumers. We strongly support the ACCC’s calls for an inquiry to examine the banking industry’s competitiveness” commented Customer Owned Banking Association (COBA) CEO Michael Lawrence. “The Productivity Commission found that competition drives innovation and overall value for customers. The financial services royal commission looked into misconduct - now is the time to look into competition” he added.