Light-touch competition policy hasn’t helped Australian mortgage holders. It’s time to get tough

Acquisitions such as ANZ’s of Suncorp should be presumed to be anticompetitive until proven otherwise

My latest in The Guardian

Just two weeks after Prof Allan Fels reported on the extent of monopoly power and resultant price gouging, Australia’s supreme body on competition law has delivered its answer.

The Australian competition tribunal has determined that the banking industry has all the competition we need and that no harm will be done by allowing ANZ to swallow one of the few competitors to the Big Four by acquiring the banking operations of Suncorp. This was the latest in a string of defeats for the Australian competition and consumer commission (ACCC), the regulator formerly headed by Prof Fels.

In effect, the tribunal reversed the burden of proof. Whereas the ACCC said it was not satisfied that the merger would not reduce competition significantly, the tribunal said this was not enough. It was up to the ACCC to prove the seemingly obvious point that a large firm taking over a smaller rival would reduce competition.

Perhaps this is a case of 'Buggins’ turn', with the ANZ having missed out on the acquisition party so far

In making its decision, the tribunal referred to the competition provided by Macquarie Bank, the sole survivor from the rush of entrants to the banking industry in the wake of deregulation in the 1980s, and to the role played by mortgage brokers like Aussie Home Loans (established in 1992).

This account ignores the disappearance of Advance Bank, St George Bank and the Bank of Melbourne, all swallowed by Westpac, Bankwest (now part of the Commonwealth Bank) and digital bank “86 400”, taken over by NAB, among others. But perhaps this is a case of “Buggins’ turn”, with the ANZ having missed out on the acquisition party so far.

Most of the institutions that have disappeared were originally either building societies or publicly owned lending institutions. That’s true of Suncorp bank, formed from a merger of Metway (the former Metropolitan Permanent Building Society) and the Queensland Industry Development Corporation (formerly the Queensland Agricultural Bank).

In the pre-deregulation era, these institutions provided important competition for the private banks, which were subject to relatively stringent regulatory constraints in return for privileged access to support from the Reserve Bank. Deregulation removed those constraints, while maintaining the benefits of bank status. Non-bank financial institutions found it nearly impossible to compete, and most turned themselves into small banks, ripe for takeover.

Competition did produce some reductions in bank margins over the course of the 1980s, though much of the reduction was offset by increased fees and charges. But in the 15 or so years since the global financial crisis, margins have barely moved. Meanwhile, the average new mortgage (adjusted for inflation) has risen by about 60%. So the banks are making a lot more money for the same basic service.

As in other industries, such as electricity and telecommunications, the privatisation of government enterprises in the banking sector was undertaken in the belief that competition would protect consumers from exploitation. This was the central theme of the report of the National Competition Policy Review Committee, usually called the Hilmer review after its chair, Fred Hilmer, who subsequently became (among other things) a director of Macquarie Bank. The central theme of the review was the need to protect private enterprise from the unfair competition of the public sector. The ACCC was supposed to keep private monopolists in line.

Thirty years after the Hilmer review, it’s evident that nothing of the kind has happened. Markets are as concentrated as ever and the ethic of public service which continued to influence firms such as Qantas, Telstra and the Commonwealth Bank for some time after privatisation has long since disappeared.

If competition policy is to have any real effect, it must be strengthened. First, responding to the latest tribunal decision, competition policy should reverse the burden of proof. Any acquisition by a dominant firm should be presumed to be anti-competitive, and it should be up to the acquirer to prove otherwise. As recommended in the Fels report, there should be a divestiture power, enabling previous mergers to be unwound.

But this is unlikely to be enough. As in the cases of electricity and telecommunications, it is necessary for the public sector to re-enter the market. In the case of banking, the urgency is increased by the rapid disappearance of cash, which is increasing our dependence on banks whether we like it or not.

We need a public guarantee of access to cash, perhaps provided through Australia Post. In the longer term, as physical cash inevitably fades, we may need to consider the provision of digital cash issued by the Reserve Bank. This could provide the basis for publicly guaranteed savings accounts, independent of the private banking system.

Decades of “light-handed” regulation under neoliberalism have done little to benefit Australian households. In competition policy and elsewhere, it’s time to for government to get a bit more heavy-handed.

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