The oxymoron that is banking competition

In small and medium enterprise (SME) lending in particular, St George was eating away at the undeserved big four dominance. The big four's treatment of their SME constituency has been peppered with bank staff incompetence, indifference and malpractice.

The regulators responsible for monitoring financial services unconscionability, successively the ACCC and (after March 2002) the Australian Securities and Investments Commission, have been recipients of perennial complaints from bank victims. Both regulators have declined to act on these complaints.

Given that regulatory redress of unconscionable conduct against SMEs is non-existent, the ACCC could have compensated by rejecting the St George takeover.

Labor Treasurer Wayne Swan approved the St George takeover on October 23, compounding the disgrace. Swan claimed that “this decision strikes the right balance between enhancing the competitiveness and the strength of our banking system”. No it doesn't. It is a mortal blow to competitiveness for the indefinite future.

The emphasis on stability is unwarranted. St George was not in trouble. If BankWest’s parent HBOS was in trouble, BankWest could have been delivered to a bank other than one of the big four.

Meanwhile, bank incautiousness during the boom has been complemented by bank bastardry during the crisis. They have scrambled to appropriate security over assets of failed companies whose flawed business models they had previously underwritten (Babcock & Brown, Opes Prime). They have forced companies to close plants (Pacific Brands) at short notice, and to divest assets at under value (OZMinerals, PaperlinX), to clean up their own fractured balance sheets. They have jettisoned the tawdry financial advisers and advisers’ clients that they previously underpinned (Storm Financial). They are starving their small business customers of credit.

The Rudd Government has chosen to define the “national interest” through entrenching the already formidable power of the big four within the Australian economy. The financial crisis has provided an ideal environment to facilitate the consolidating of banking.

A Sydney Morning Herald editorial of October 13 claimed that “a comprehensive stocktake of the competitive landscape of the banking sector is sorely needed”. The September Senate Report on bank mergers, initiated by Independent Senator Nick Xenophon, was a damp squib. Hell will freeze over before either major Party initiates a serious inquiry into the power and culture of the banking establishment.