Four Pillars Looking For Wisdom

Sydney Morning Herald

Tuesday May 13, 2008

WE NOW know what the Treasurer, Wayne Swan, will be doing after he has bedded down his first budget: he will be working out whether to approve the latest round of consolidation in Australia's banking industry. The proposed merger between Westpac and St George, if it passes all the regulatory hurdles, will create Australia's biggest bank out of the present numbers three and five. It will reduce competition and, as both banks have strong representation in NSW, that consequence is significant for this state. But even so, does that necessarily mean consumers will suffer?

St George, a smaller force in the borrowing market, has suffered during the credit squeeze because it has had to pay more to borrow the funds it lends its customers. The merger should reduce those costs and, we may hope, the rate pressure on the customers it brings to the bigger bank will ease. The credit squeeze, though, will eventually dissipate, and that argument for a merger along with it.

A larger, merged operation may find it easier to expand overseas. This, after all, was one rationale for the so-called four pillars policy which sees the big four banks unable to merge with one another, and supposedly directed overseas for expansion. But maybe this is the prompt to re-examine the policy. Is it still appropriate after a decade and a half of globalisation to insist the big four cannot merge with each other to become internationally competitive? The argument has always been that Australia's banks should grow by extending themselves overseas, and indeed they have tried, but the experience has often ended unhappily, as NAB's Homeside experience showed. Perhaps, instead of preserving a solid foundation for overseas moves, the protection they have been given has made them complacent and a little lazy.

The banks dislike their protected status, and believe an overseas bid for one of them would sink the policy for good. Why, they argue, should a foreign bank be able to bid for one of the Australian big four, while the other three cannot? It is a fair point. Now that movement is under way, perhaps foreign eyes will focus more keenly on Australian banks. Paul Keating used a run on the Australian dollar to float the currency and internationalise the economy. A bid from the United States or Britain would be controversial, but what if it came from China or India? Yet such a bid might be Wayne Swan's Paul Keating moment.

© 2008 Sydney Morning Herald

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