Monopoly Banking Sector in Australia

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
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ECONOMICS ASSIGNMENT1
Introduction
The market structure in Australia is in nature of Monopoly. Most of the service sectors
operates together starting with the industry for retail banking. The banks actively work together
and share the profits among themselves. The Australian Competition and Consumer Commission
(ACCC) has two most important query regarding the competition in banking industry.
ACCC Chairman, Rod Sims has addressed that the sections addresses the oligopoly
market structure of the banking industry. Yet, the cases of the banks formation of cartel is not
alleged. Till date the market structure is influenced by mainly four banks creating monopoly
power. However, that is not the only concerned case because there are other factors that comes
into existence and effectively challenging the banks. Simon has also mentioned how the ACCC
findings on exchange would be analytical to understand the type of competition (Altman &
Ward, 2018). The aim of this paper is to understand the working structure of Australian banks
and the suitable measures to be taken in order to solve the issues of monopoly banking sector.
Australian Competition and Consumer Commission (ACCC)
The commission is an autonomous authority of the Australian government, established in
1905. The prime objective is to look after the business rights, consumer rights, regulation of
industries, monitoring of prices and stop illegal anti-competitive behavior. ACCC does not favor
anyone, be it consumers or producers and seeks to reach a competitive market structure without
unreal restriction. They have the power to bring about court actions against firms that rupture the
Competition and Consumers Act and would be fined by the Federal Court (Bakir, 2013).
Scandals by Australian Banks

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A national investigation into Australia’s financial section had reportedly shown sweeping
changes over the last ten years and has engaged in scandals. This has been done after twelve
months of research by an organization named Royal Commission Misconduct in the Banking,
Superannuation and Financial Service Industry. They revealed that banks have been charging
fees without providing services. 76 recommendations were objected towards the banking
industry for the series of scams performed which lost confidence among people. Banks have
collected fees even for dead customers and customers who lost everything; including country’s
biggest moneylender, Commonwealth Bank of Australia (Banks et al., 2015).
According to media reports, the Commonwealth Bank of Australia (CBA has made profit
of billion dollars by paying huge dividends to its shareholders. The scenario is same in other
three important banks as well. These deep seated problems arising due to way Australians buy
insurance, advice and superannuation and for poor management standards. CBA has been
involved in matters relating to money laundering for drug syndicates, ignoring legal
responsibilities and impudent foreign exchange trading. The bank led its smart money depositing
machine to be used by money-laundering syndicates associated to drug distribution and
importation networks. The bank received a penalty of about 375 million dollars which the bank
has underestimated.
A report by the Productivity Commission made it clear that the big financial institutions
exploited the loyal customers and faced a constant public caning. The institution is suspected to
finance for suspicious matters such as terrorism. They failed to provide terrorism financing
suspicions within 24 hours, did not monitor risk of 38 instances and neglected over 54 cases
under law enforcement investigation. Westpac triggered Australia’s interest rates and secretly
lending money to elderly pensioners. The National Bank of Australia (NAB) had to pay millions

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of dollars for giving wrong advices to business planners which eventually led to immense losses
(Buckley & Ooi, 2015).
Monopoly Banking Sector
The banking industry in Australia is influenced by four major banks such as the
Australia and New Zealand Banking Group, Westpac Banking Corporation, National Australia
Bank and the Commonwealth Bank of Australia. Although the country has a large number of
smaller banks and many other financial institutions, the banking industry is influenced by the
working structure of these particular banks. Presence of large foreign banks are there, yet a few
among them has a functioning on retail banking. Smaller financial institutions like credit unions,
mutual banks and building societies are there which have little banking services and is
considered to perform under authorized deposit taking institutions (Chaly et al., 2017).
The productivity commission has reported these banks to generate huge costs, by putting high
price for upgrading the net revenue instead of carrying the burden of lowering the market share
at every stage of the business cycle. Dead weight loss is created due to lack of competition in the
major banks. This high concentration makes firms makes the institutions to enact as a single firm
with similar rate of interest.
Consequences of monopoly structure
The central four banks have organized a cartel arrangement because the greater chunk of
the shareholders are from those important banks. Thus, a common enthusiasm and interest exist
in the same banks. The shareholder’s work is to take away the maximum profit from the firms by
creating a monopoly market structure such that they can dominate and influence the market
price. Profit maximization is achievable by the formation of cartel. About 450,000 people are