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Report: Inquiry Into Aspects of Bank Mergers

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Report: Inquiry Into Aspects of Bank Mergers The Senate Economics References Committee Report on Bank Mergers September 2009 © Commonwealth of Australia 2009 ISBN 978-1-74229-148-2 Printed by the Senate Printing Unit, Parliament House, Canberra. Senate Economics References Committee Members Senator Alan Eggleston, Chair Western Australia, LP Senator Annette Hurley, Deputy Chair South Australia, ALP Senator David Bushby Tasmania, LP Senator Barnaby Joyce Queensland, NATS Senator Louise Pratt Western Australia, ALP Senator Nick Xenophon South Australia, IND Participating members participating in this inquiry Senator John Williams New South Wales, NATS Former Members Senator Doug Cameron New South Wales, ALP Senator Mark Furner Queensland, ALP Secretariat Mr John Hawkins, Secretary Mr Greg Lake, Principal Research Officer Mr Glenn Ryall, Senior Research Officer Ms Hanako Jones, Executive Assistant Ms Lauren McDougall, Executive Assistant PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: [email protected] Internet: http://www.aph.gov.au/senate_economics/ iii TABLE OF CONTENTS Membership of Committee iii Chapter 1.............................................................................................................. 1 Introduction .............................................................................................................. 1 Referral of the Inquiry ............................................................................................ 1 Conduct of the inquiry ............................................................................................ 2 Outline of the report ............................................................................................... 2 Chapter 2.............................................................................................................. 3 Background - the Australian banking market ....................................................... 3 A history of strong banks in Australia .................................................................... 3 Concentration in the Australian banking market .................................................... 4 Chapter 3............................................................................................................ 15 The economics of bank mergers ............................................................................ 15 Economies of scale in banking ............................................................................. 16 Economies of scope .............................................................................................. 22 Concentration, contestability and interest margins .............................................. 22 Chapter 4............................................................................................................ 27 Recent Australian bank mergers .......................................................................... 27 The Westpac takeover of St George Bank ........................................................... 27 The Commonwealth Bank takeover of BankWest ............................................... 30 Branding strategies ............................................................................................... 32 Possible further mergers ....................................................................................... 34 Impact on consumer choice .................................................................................. 35 Impact of mergers on system stability .................................................................. 38 Impact on interest margins ................................................................................... 39 v The global financial crisis and bank mergers ....................................................... 41 Chapter 5............................................................................................................ 43 Regulation of Australian bank mergers ............................................................... 43 ACCC approval of mergers .................................................................................. 43 The 'four pillars' policy ......................................................................................... 54 Approval by the Treasurer for other bank takeovers ............................................ 56 The role of the Australian Prudential Regulation Authority (APRA) .................. 60 Chapter 6............................................................................................................ 63 Employment and 'offshoring' ................................................................................ 63 Employment in banking ....................................................................................... 63 Employment impact of mergers ........................................................................... 64 'Offshoring' of jobs by banks ................................................................................ 65 The extent of offshoring ....................................................................................... 66 The impact of offshoring ...................................................................................... 69 Policy responses to offshoring.............................................................................. 70 Labor Senators' Dissenting Report ................................................................. 73 Competition in the Banking Sector ...................................................................... 73 Member owned financial institutions ................................................................... 74 Increased transparency of the ACCC ................................................................... 75 ACCC, APRA and the Reserve Bank – Joint Annual Report .............................. 75 Monitoring and enforcing conditions ................................................................... 76 Employment and offshoring ................................................................................. 77 Minority Report by Senator Xenophon .......................................................... 81 Introduction .......................................................................................................... 81 Background ........................................................................................................... 81 The economic, social and employment impacts of the recent mergers ................ 83 The measures available to enforce conditions on future bank mergers ............... 84 vi The capacity for the ACCC to enforce divestiture in the banking sector ............ 85 Consumer choice and competition ....................................................................... 86 Off-shoring ........................................................................................................... 87 Conclusion ............................................................................................................ 88 Bibliography ...................................................................................................... 91 APPENDIX 1 ..................................................................................................... 95 Submissions Received ............................................................................................. 95 Additional Information Received .......................................................................... 96 APPENDIX 2 ..................................................................................................... 97 Public Hearings and Witnesses ............................................................................. 97 Canberra, Thursday 12 March 2009 ..................................................................... 97 Canberra, Friday 13 March 2009.......................................................................... 97 Brisbane, Wednesday 1 July 2009 ....................................................................... 98 Perth, Thursday 2 July 2009 ................................................................................. 98 Canberra, Monday 10 August 2009 ..................................................................... 99 vii Chapter 1 Introduction 1.1 The acquisitions of St George Bank by Westpac and Bankwest by the Commonwealth Bank in 2008 increased the market share of the 'big four' banks. Around the same time the global financial crisis weakened the position of some non-bank lenders, who competed with the banks by raising funds in securities markets. These events have led to concerns that increasing concentration from bank mergers may be significantly reducing competition in the Australian market for financial services. Referral of the Inquiry 1.2 On 24 November 2008, the Senate referred a number of matters relating to aspect of bank mergers to the Senate Standing Committee on Economics for inquiry and report by 26 February 2009. The Senate later extended the reporting date to 17 September 2009. The terms of reference setting out the matters to be investigated during the inquiry were as follows: (a) The economic, social and employment impacts of the recent mergers among Australian banks; (b) The measures available to enforce the conditions on the Westpac Banking Corporation/St George Bank Ltd merger and any conditions placed on future bank mergers; (c) The capacity for the Australian Competition and Consumer Commission (ACCC) to enforce divestiture in the banking sector if it finds insufficient competition;
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