By David Tuckwell on Wednesday 10 May 2017
Regulation for bankers is long overdue.
Confronting Australia’s big banks is long overdue, and good for fintech.
Australia's big four banks have been declared the “biggest losers” of the 2017 budget—for good reason.
More taxes, higher fines, and a new purpose-built government body to hear out the public’s banking complaints—all handed down in a single budget.
More remarkably still, senior bank executives will now be required to register with the government. If they misbehave, the government can deregister them and prevent them from taking executive positions at other banks (in effect, demote them permanently).
While bankers may complain, the slurry of banking regulation is a positive development and good for alternative finance.
According to the IMF, Australia has the most concentrated and profitable banking sector in the developed world. For every $100 that is spent in the Australian economy, analysts estimate that $3 ends up as profit at one of the big four.
While Australia’s GDP sits just above $1.6 trillion, the combined assets of the banks are $4.1 trillion, of which about $2.6 trillion is outstanding loans. With this size comes power for the banks and powerlessness for consumers and small businesses.
Competition is the first casualty in this system. (When 90 percent of the highly profitable home loan market is controlled by just four banks, how could it not be?) That the big four banks' interest rates move in tandem - the opposite of how a competitive banking sector should work - has been well noted. So too has the near uniformity of the big four's pricing structures.
Fintechs have complained about the barriers to entry created by the big banks. Only to be told by the ACCC, the competition regulator, that the government hasn’t provided the resources necessary to tackle the problem. Yesterday’s budget may signal a change in the winds.
Business ethics are the second casualty. CommInsure, an arm of the Commonwealth Bank, not paying out life insurance claims; ANZ, NAB and Westpac rigging rates; Macquarie admitting to cartel conduct. In a scandal-plagued industry, is it any surprise that three out of five Australians support a Royal Commission into banking?
The last and most important casualty of the banking system is democracy. The past several years, the revolving door between politics and banking has been well lubricated.
Anna Bligh went from the Premiership of Queensland to top dog at the banker’s lobby. Ian McFarlane went from heading the central bank to a gilded seat on ANZ’s board. Ken Henry left the Federal Treasury, where he advised then-Treasurer Wayne Swann on banking competition policy, to a position on the NAB’s board.
Behind this revolving door sits a stable of well-funded lobbyists, who argue the case for banks in the halls of power. Their political clout has enabled them to delay and kill sensible policy, such as open data laws, which has slowed the growth of fintech in Australia.
As the banks begin their marketing campaign against the budget, let’s hope the Treasurer can stand strong.