The 'four pillars' approach to banking competition in Australia only serves to protect domestic banks, with "little or no benefit to consumers", according to a new research report.
The Centre for International Finance and Regulation (CIFR) has released the Competition in Financial Services research report – with the key recommendation of the removal of the 'four pillars' policy.
Launching the report in Sydney yesterday, lead author Dr Rob Nicholls said the four pillars policy – which was introduced to prevent mergers between the big banks – actually reinforces the "entry and exit issues" that are hampering competition in the industry.
"All of the big four banks currently operate in a way that allows for divestment of non-performing or strategic assets," Mr Nicholls said.
"However, the focus on the four pillars by the twin peaks of both ASIC and APRA potentially leads to a focus which provides a barrier to exit or entry."
The paper made four findings on the topic of the four pillars policy, said Mr Nicholls – the first of which was that it is "industry policy at its worst".
"It’s protection of domestic players with little or no benefit to consumers.
"Second, the unintended consequence of the policy – particularly in a post-GFC environment – has been deep vertical and horizontal integration," he said.
Third, Mr Nicholls said there are already sufficient merger protections in the system that remove the necessity of the four pillars policy.
"It is pretty inconceivable that a merger between any of the big four would not lead to the ACCC finding substantial lessening of competition in any market.
"Finally – there is a problem that the four pillars policy leads to asymmetric regulation, but not the asymmetric regulation that encourages entrants and deals with incumbents in some other way – it’s asymmetric regulation that favours the incumbents," Mr Nicholls said.
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