What is the GFC doing to our banks?

The size and health of the Big Four has no doubt helped the Australian financial sector and the economy escape the worst effects of the GFC, and the government's decision to stand behind them in these circumstances may well have been the right one. However, the government's decisions have unleashed powerful anti-competitive forces that will be difficult to control.

The ACCC is already starting to see evidence of increasing margins on loans.

Since the GFC began, the Big Four have increased their share of the mortgage lending market from 80 per cent to a massive 92 per cent. In the first quarter of 2009, two banks (CBA and Westpac) accounted for a whopping 90 per cent of all new residential home loans.

Total assets of the Australian financial system are valued at 350 per cent of Australian GDP - 3.5 times the size of the Australian economy. The Big Four control a massive majority of those assets.

As the Big Four continue to grow, acquiring insurance and other non-banking businesses, their influence over the market, their competitors and governments will also grow. The Big Four have adopted the multi-business, multi-product banking model that was so popular with America's big banks - Citibank, Bear Sterns, Lehman Brothers - and that brought the American economy to its knees.

The Big Four are becoming Too Big To Fail, creating profound systemic risks and moral hazard in the financial sector. The GFC may well plant the seeds for our own, home-grown financial crisis in the future.

Once the dust settles, if we can't find a way to unwind this, we'll all be paying for it.