Balancing Competition and Stability in Australian Retail Banking
The trade-off between competition and financial stability as policy considerations has been the subject of much recent consideration in Australia in the context of two major Government–initiated reviews: the Financial System Inquiry (2014) and Competition Law and Policy Review (2014).
Since the global financial crisis, most policymakers and economic researchers have highlighted the need for prudential regulation, and the importance of competition has been, to an extent, sidelined.
However, evidence shows that competition is still essential to consumer welfare and that the conventional wisdom of ‘competition prejudices stability’ in financial services should not be taken for granted. In fact, evidence and scholarship is divided on whether that wisdom is sound, and shows that the issues are far more complex than are reflected in that rubric.
Given the richness of relevant research available which is publically available from the OECD, a survey of literature, and consideration of its lessons when applied to the Australian context, provides a timely contribution to the policy debate.
The authors acknowledge the support provided for this research by the Centre for International Finance and Regulation under Grant T020: Competition in Financial Services, and UNSW Australia.