Treasurer Wayne Swan has announced measures to increase competition in the banking sector. In Australia, the big banks - Commonwealth, National Australia Bank, Westpac/St George and ANZ – hold most of the market. They also effectively own a number of second-tier banks and mortgage providers. For example the Commonwealth Bank own Bank West, Wizard Home Loans and has a 33% stake in Aussie (Home Loans)
The banks act a a classic economic oligopoly. The mortgage market is effectively controlled by only a few large corporations. They have increased interest rates on loans above the increases announced by the Reserve Bank, are largely unaffected by political “pressure” statements of the current (Labor) government, and the previous (Liberal-National Coalition) government. They have not increased rates on their savings accounts, and have reduced the rates on some term deposits in the second half of 2010.
The measures announced by Mr Swan include:
- banks to issue a one-page fact sheet detailing repayments, total amount repaid, and URL’s of websites where rates can be compared
- exit fees to be abolished
- ACCC to be given power to investigate price collusion. In an oligopoly such as run by the banks, public comments about ‘we need to raise interest rates’ also acts as a signal to other banks, and softens-up the public before the almost simultaneous rise by the banks. The practice is called ‘price-signalling’, and stifles competition.
- credit unions and building societies will be allowed to issue ‘covered bonds’.
- former Reserve Bank Governor, Bernie Fraser, will be asked to investigate how technology can be used to make it easier for consumers to switch mortgages, and savings accounts.
- credit card reform will limit or ban over-limit fees, unless the consumer deliberately allowed it.
The announcement was orchestrated as a full press conference, with the Treasurer, Assistant Treasurer & Minister for Financial Services & Superannuation, Bill Shorten, and the Treasurer’s Parliamentary Secretary to the Treasurer, David Bradbury. It was, by any measure, a media “event”, designed to maximise publicity about taking on the banks, and improve the government’s approval rating. Former (Liberal) Treasurer, Peter Costello used to put on such shows, at which he also revelled in his displays of sharp wit.
It remains to be seen whether the Liberal-National Opposition will support the legislation, designed to increase competition, and give more power to consumers, or support the big banks in their opposition to competition. The history of the Liberal-National opposition since losing government in 2007, and the 2010 election, has been to support big business and oppose, or obstruct, most legislation introduced to Parliament by the government. I suspect it will try its best to obstruct and delay as much as it can.