The Financial Services Inquiry was ostensibly established to look at issues of competition in what has become an overly concentrated Australian financial landscape.
But in a radical call overnight, the SMH reports that former Goldman Sachs co-chairman Alastair Walton says it’s time to break up the big banks to improve competition.
Walton argued that the too-big-too-fail status of the majors and the sheer size of their balance sheets and dominance of Australian banking meant that a “day of reckoning” would ultimately strike when the next financial crisis struck.
“Would Australia as a whole be better off with 8 to 10 banks each of which are rated A (like almost every other bank in the OECD) and primarily rely on domestic deposits to fund their lending activities,” Walton said.
But he went on to hammer home his point by saying:
“Or continue infinitum with four ‘too big to fail’ banks each of which are rated AA-, and utilise the sovereign support of the Australian Government (either implicitly or explicitly with a guarantee fee) to access high levels of low-cost offshore funding to support their domestic lending activities.”
It’s an important question and one that is clearly worrying APRA, as we have seen both from chairman Wayne Byers and new leverage rule disclosures announced yesterday for Australia’s big banks.
Walton is right when he says “creating a highly competitive financial sector is going to require breaking a few eggs and taking on powerful vested interests”.
But the Murray Inquiry, the Government and regulators are likely to use something smaller than Walton’s sledgehammer.
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