Economics Essay: Market Structure and Australian Banking Oligopoly

This economics essay analyzes the Australian banking oligopoly, focusing on the statement by ACCC Chairman Rod Sims regarding the 'cosy banking oligopoly' in Australia. The essay delves into the market structure of the Australian finance sector, examining the dominance of the major banks (ANZ Bank, Westpac, Commonwealth Bank of Australia and National Australia Bank), their market share, and the implications of limited competition. It explores the application of oligopolistic theory to understand the behavior of these banks and the potential impact on consumers and the risk of bank failure. The essay further investigates the role of the ACCC in addressing the lack of competition, including its investigations into potential regulatory barriers and actions taken to promote competition. It also considers the recommendations of the Hayne Commission and the impact of mortgage broker remuneration on competition. The analysis draws on economic principles related to benefits, costs, and market structure, providing a comprehensive understanding of the challenges and potential solutions within the Australian banking sector. Finally, the essay concludes by summarizing the key findings and discussing potential actions to overcome the problems caused by the oligopolistic structure, such as regulatory changes and increased monitoring.

Running head: Economics
Economics
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1Economics
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Conclusion..................................................................................................................................6
Reference list..............................................................................................................................7

2Economics
Introduction
Currently the Australian oligopolistic banking system is more or less cosy in nature.
Through the manipulation of key benchmark of interest rate, the banking sector in Australia
is not having that level of competition. According to the view of Australian Competition and
Consumer Commission chairman, Rod Sims, the future growth opportunity of banking
sectors regarding the wealth management will be limited in the long run as the scope for
further acquisitions is less due to lack of competition in the market. As per Sims, the
profitability and the market share is showing the fact that the competition is not growing that
much. One of the significant way of understanding the problem and analysing the problem is
through the use of oligopolistic theory that will mainly reduce the cartel formation within the
banks so that the competition can bring in high quality of resource distribution. This will
highlight the potential outcome in the form of increased level of market share that will induce
the development of resources.
Discussion
Cosy oligopolistic structure of four Australian largest bank is one of the reason why it
might affect the behaviour on the consumer and the risk of bank failure is getting increased
daily. Four big banks of Australia are ANZ Bank, Westpac, Commonwealth Bank of
Australia and National Australia Bank and each of these are holding more than total of 75%
of the market share within the domestic market and the rest 30% of the market is being is
dominated by other banks in the market. All these banks are preferring lower funding costs
compared to smaller competition as they have been provided the assurance by the
government is that they will be given protection if they face any kind of trouble (ft.com,
2019). Now without the presence of the competition the market economy and the concept of
invisible hand will not operate efficiently. Now that will definitely allowing the incorporation

3Economics
of better quality of resources within the banking operation will definitely allow both the
consumers and suppliers to behave in a right manner.
Until and unless these banks are not facing fear or threat of going out of the market,
the banks will not be able to maximise their operation efficiently. This is one of the important
issue because of the fact that many small financial institutes are facing regulatory barriers that
are forcing them to stop giving efficient level of services to the customers. The Sims
Company is mainly investigating the reasons for which the big banks are given so much
privilege and it is the aim of the company to reduce the barriers so that the small institutions
can definitely increase their level of financial production in terms of money circulation and
loan making ability of economy (Afr.com, 2019). New banking rules will be brought in the
system that will definitely allow the customers to choose different banks depending on the
services they are going to get.
According to Sims, regulators did not allowed Westpac to merge with the St George
Bank in 2008 and this was enough to bring disruption within financial market of Australian
economy. Till date resource capitalisation was literally impacting big banks and small banks
in terms of their decision making. The ACCC Committee is observing the financial market of
Australia in terms of detriment of small banks and rolling out of market series data that will
actually help the small companies to bring in high quality of regulatory and legislative
competition within the industry (Australianfintech.com.au, 2019). On the other hand, the
Hayne Commission actually found out the gaps within the amount of investment and have
found that most of the big banks were charging from the customers for no services and
instead they provided the poor services to the customers.
The ACCC has found that since the occurrence of global financial crisis, the share of
big farms are having increased level of shares and assets of these big banks has increased to

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75% from the 65%. Only the data of market growth for the big banks was not the only thing
to look out but the study of the market cannot be done looking only at them. Through the
incorporation of better quality of financial resources, the overall utilisation of market
regulation was taking the form of cartel that was only benefiting the big banks (Smh.com.au,
2019). Even institution like ASIC has taken actions against ANZ banking group for alleged
manipulation of the bank bill swap rate is an important fact to look out for. Through the
development of high class of financial monitoring, the study have seen that big banks will
continue to move on doing wrong things under the prevalence of government. Another factor
in the form of concentration of banks and vertical integration is an important factor behind
the development of long run problems that will definitely give rise to the cartel formation.
The FSI pointed to wealth platforms getting bigger, and the big four banks and AMP
holding around 80 per cent of primary planner relationships. It was aimed in revisiting and
securing the distribution channel with main aim was given on the improvement in the
technologies along with the process like lowering down of fees and down payments and other
financial aspects. ACCC was awarded amount of $35.6 million over four years that has
helped the development of better level of resource monitoring and the ACCC has
successfully monitored the financial aspects that will definitely indulge the incorporation of
better aspects (Stewart & Stewart, 2019). Some of the second tier banks in the form of
Macquarie, Suncorp, Bank of Queensland, and Bendigo and Adelaide Bank were all still part
of the ASX100 and is not being able to compete with the operation of big four banks.
According to ACCC’s finding the nature and characteristics of exchange fees will be
crucial for better level of understanding of competition within the banking sectors. Previously
mortgage was an inherent part behind the formation of competition within the industry. But
from the recommendation of Hayne Commission, the ACCC is not sure whether mortgage
broker remuneration should be shifted from borrowers to lenders. Compared to the amount of

5Economics
network connectivity that the big banks are having, the smaller banks are not having that
much level of connectivity and they have to depend largely on mortgage brokers to get their
business (Australianfintech.com.au, 2019). Through close observation of the existing
monetary and fiscal operation of most of the banks in the banking sector will definitely allow
the economy to flourish that will definitely allow the economic activities to flourish. Through
the incorporation of better level of business, the banking sectors will be looking to build up
better level of resource utilisation.
Conclusion
Through the study it is quite clear that regulatory misconducts within the economy of
Australia is existing and that is actually hindering growth and development of better quality
of resources. Now in order to indulge better quality of resources, it is quite obvious that
through the development of resources, it can be said that ACCC commission is doing right
thing. It is required to resettle the regulations that are prevailing within the banking industry.
Now through the increased level of resource building abilities will definitely allow small and
micro financial institutions to build up the development of monetary situations and
environment within the banking environment. In order to minimise the corruption within the
banking industry, it is required to bring in effective level of control that will definitely allow
them to work within a competitive environment.

6Economics
Reference list
Afr.com. (2019). ACCC's banking unit has two cases underway, Rod Sims says. Retrieved 2
September 2019, from https://www.afr.com/politics/acccs-banking-unit-has-two-
cases-underway-rod-sims-says-20190226-h1bqfr
Australianfintech.com.au. (2019). Australian regulator vows to tackle ‘cosy oligopoly’ of big
banks. Retrieved 2 September 2019, from https://australianfintech.com.au/australian-
regulator-vows-to-tackle-cosy-oligopoly-of-big-banks/
ft.com. (2019). Australian regulator vows to tackle ‘cosy oligopoly’ of big banks | Financial
Times. Retrieved 2 September 2019, from https://www.ft.com/content/d940092a-
25f2-11e9-8ce6-5db4543da632\
Smh.com.au, J. (2019). ACCC warns 'cosy' banks it is concerned about competition.
Retrieved 2 September 2019, from https://www.smh.com.au/business/banking-and-
finance/accc-warns-cosy-banks-it-is-concerned-about-competition-20160322-
gnojod.html
Stewart, T., & Stewart, T. (2019). Banks are ‘fiercely competitive’: Westpac CEO. Retrieved
2 September 2019, from https://www.investordaily.com.au/regulation/40938-bank-
are-fiercely-competitive-westpac-ceo