Australia's financial system is based on the Four Pillars -- Commonwealth Bank of Australia, Westpac Banking Corp, National Australia Bank and the Australia and New Zealand Banking Group. The Four Pillars doctrine was established in 1990 by Treasurer Paul Keating during the Hawke administration. There were originally to be Six Pillars -- the Four Pillars plus the two major life offices, National Mutual and the Australian Mutual Provident Society. (AMP).
The Six Pillars, however, were already beginning to collapse. National Mutual wanted to overtake AMP as number one life office and was doing so by offering capital guaranteed products at uneconomic levels. When it reverted to sustainable rates, the flood of funds dried up. AXA of France, eyeing National Mutual's difficulties and burgeoning Asian business, made a move on the Melbourne-based life office, which prevented half of Australia's households losing their retirement savings.
The original aim of financial deregulation was to expand choice in the Australian banking market. The government offered a 'who's who' of international banking domestic banking licenses, with the aim of shaking up the domestic industry. In fact, the reverse happened. No foreign bank has a substantial retail banking business in Australia. They have either left or sold out to the major Australian banks. HSBC retains a small retail presence, as does Citibank.
Of course, there are (or were) State government owned regional banks. State Bank of Victoria was sent to the wall thanks to the wunderkinder at its investment banking offshoot Tricontinetal Corp and was taken over by Commbank. The State Bank of NSW was also taken over, in a roundablout way, by Commbank. Commbank also end up with BankWest, the avatar of Western Australia's Rural and Industries Bank (and also inherited many unhappy customers). The State Bank of South Australia collpased and was acquired indirectly by Westpac.
Three small banks, usually referred to as regional banks, have battled on. The Bendigo and Adelaide Bank uses a quasi communithy based ownership structure, which has proved to be great for launching branches and much less effective in closing them down when they prove to be unviable, as some inevitably must be. Bank of Queensland operates on a franchise model, which has not prevented it from taking some heavy hits in commercial property. Suncorp is entrenched in the Queensland market.
What has been the net outcome of banking deregulation? The opposite of that intended. Just about every financial institution of any note has been taken over by the Big Four. Some may object that Macquarie Bank has been excluded. First, MacBank is an investment bank with a very narrow market and second, without the government guranteeing is ovgerseas loans during the global financail crisis (GFC) it is likely MacBank would have gone to the financail knacker's yard.
The premise of the initial round of bank rationalisations in the early 1980s was that banks would be stronger and more competitive. NAB took over the the Commercial Banking Compnay of Sydney (CBC) and the Bank of New South Wales merged (in much the same way Germany merged with Poland in 1939) with the Commercial Bank of Australia to form Westpac, then Australia's largest bank. In case you missed the subtext, the CBC was a Sydney bank and the CBA was a Melbourne bank.
To put anyone who is totally ignorant about Australian banking out of their misery, both Melbourne and Sydney host two of the Four Pillars -- Melbourne has the ANZ and NAB, while Sydney has Commbank and Westpac. This suits the politicians very nicely -- and the rest of Australia not very well.
As with most things in Australia, banking is over controlled and over regulated. Apart from Westpac's pathetic attempt to reboot the Bank of Melbourne -- after it took over the original Bank of Melbourne, an excellent business based on the highly popular RESI building society which it then killed off by rebadging all the branches with Westpac red -- "innovation" by Australian banks has been rare in recent years. The Bendigo did absorb the mnnow Bank of Cyprus but the Big Four have cleaned up just about everything else.
Why not let rhe market have a go? Whether the governemnt admits it or not, the Four Pillars are "too big to fail". Why not encourage a small to medium business bank, or let the Australian Post Office compete in the retail market? After all, it's run by a former NAB banker.
Like any organism that's been in a lush paddock for too long, the Big Four have become fat and lazy. It's time they had a shakeup. And it's woth noting the Four Pillars policy doesn't stipulate that the Four Pillars must be Australian owned.
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