Banks' Stability Beats Competition, Says Rudd

Sydney Morning Herald

Friday October 10, 2008

Jessica Irvine Economics Correspondent

STABILITY is more important than competition in Australia's banking system, the Prime Minister said yesterday.

In comments which suggested the Government would not oppose the Commonwealth Bank's $2 billion acquisition of BankWest, Kevin Rudd said if it came to a choice between stability and competition, the Government would put stability "first and foremost".

Meanwhile, the slowing economy is putting the brakes on jobs growth. Just 2200 jobs were created last month, giving the slowest annual increase in two years of just 1.9 per cent, official figures released yesterday show.

The number of full-time jobs sank 15,400, offset by a rise in part-time jobs of 17,700. The nation's unemployment rate rose by 0.2 percentage points to 4.3 per cent. The Deputy Prime Minister, Julia Gillard, said this was a "good result" in light of the growing world turmoil. Economists are now tipping the unemployment rate will rise to 5 per cent by the middle of next year.

Amid growing concern over consolidation in Australia's banking industry, the chairman of the Australian Competition and Consumer Commission, Graeme Samuel, told the Herald last night the Commonwealth proposal might not be the last bank merger to come across his desk.

"Who knows? In the current environment who knows what to expect day by day?" he said, refusing to comment on the BankWest acquisition, which would create Australia's largest banking entity. Every bank merger requires the approval of both the competition watchdog and the Treasurer, who must decide whether the merger is in the national interest.

Five months after it was first proposed, the Treasurer has also yet to announce his decision on Westpac's merger with Australia's fifth-largest bank, St George.

Mr Rudd said both his, and the Treasurer's, first responsibility was to maintain stability in the financial system. "Competition questions can be resolved over time. The stability of the system is of fundamental importance."

A survey by the World Economic Forum has ranked Australia fourth out of 134 countries for the soundness of its banks. Canada was first, followed by Sweden and Luxembourg.

Mr Rudd said banks, which have been sluggish in passing on rate cuts to credit card holders, should pass on the maximum amount. Dissatisfied card users should "vote with their feet".

© 2008 Sydney Morning Herald

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