Action needed to promote competition in banking
12 March 2010
Confirmation from the RBA that major banks have fattened their margins above pre-crisis levels increases the need for more Government action to promote competition in retail banking.
“The major banks have too much market power,” says Abacus CEO Louise Petschler.
“This is why, as the RBA has confirmed, increases in lending rates by the major banks have more than fully offset higher funding costs, with their net interest margins in late 2009 about 20-25 basis points above pre-crisis levels.
“In stark contrast, net interest margins for mutual banking institutions (credit unions and building societies) and for regional banks have shrunk from pre-crisis levels.
“This is further evidence that the big four banks have actually benefited from conditions and policy action flowing from the global financial crisis,” said Abacus CEO Louise Petschler.
“For example, the unfair fee structure in the Guarantee Scheme for Large Deposits and Wholesale Funding meant that the scheme disproportionately benefited the major banks. The fee for major banks was 70 basis points compared to 150 basis points for smaller banking institutions.
“The RBA has also confirmed that the differential in the Scheme’s fee structure was ‘relatively large by international standards’ and the fee paid by major banks was ‘at the low end of the international range.’
“One positive step to inject some competitive pressure back into the retail banking market would be an effective public awareness campaign about the prudential regulatory framework and the prudential standing of all regulated banking institutions.
“There is a lot more choice for consumers than the big four banks. Informed consumers are empowered and motivated consumers.
“A pro-competitive public awareness campaign could be funded by spending a tiny fraction of the $5.5 billion in fees that will flow to the Government under the Guarantee Scheme for Large Deposits and Wholesale Funding,” Petschler said.
For more information, please contact:
Louise Petschler, CEO
02 8299 9036; 0408 239 226;
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