Clik here to view.
https://www.accc.gov.au/speech/synchronised-swimming-versus-competition-in-banking
Rod Sims on why the banks are a cartel (except he won't say 'cartel')
Extract from ACCC Chairman Rod Sims’ speech at the AFR Banking and Wealth Summit today. Sounds to me like a pretty good description of a cartel:
… Internal documents reviewed by the ACCC reveal a lack of vigorous price competition between the five Inquiry Banks (ANZ, Commonwealth, NAB, Westpac and Macquarie), and the big four banks in particular. In fact, their behaviour more resembles synchronised swimming than it does vigorous competition.
What we found is that the pricing behaviour of the Inquiry Banks appears more consistent with ‘accommodating’ a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than vying for market share by offering the lowest interest rates.
This manifests in at least four ways:
The big four banks largely focus on each other when they determine headline interest rates and discounts on variable rate residential mortgages. This means the actions and reactions of over 100 other residential mortgage lenders do not appear to have much bearing on interest rate decisions for the big four banks’ main brands. This is important as the big four represent approximately 80 per cent of all outstanding residential mortgages held by banks in Australia.
The Inquiry Banks generally have not often sought to compete by offering the lowest headline variable interest rate to borrowers.
The banks usually move their interest rates at the same time, and in response to RBA changes in the overnight cash rate.
During late 2016 and early 2017, two of the big four banks (independently of each other) decided to take action to reduce discounting in the market. They each reduced their own discounts and sought to trigger reduced discounting by rivals, even though this was likely to be costly for them if other banks did not follow their lead. We observed that by early 2017 the two banks considered they had been successful in leading competitors to reduce discounts for a time.
These are the observed behaviours.
Then there are the internal communications.
In 2015, for example, we saw references to the need to avoid disrupting mutually beneficial pricing outcomes.
There were also references to “encouraging rational market conduct”, “maintaining orderly market conduct” and maintaining “industry conduct”.
There were also references to a desire to have interest rates that are “mid-ranking”, and to the need not to “lead the market down”.
Comments like these are at odds with banks’ assurances and the reasonable community expectations that competition in the sector is vigorous and effective. …
