Banking landscape has changed

AUSTRALIA'S banking sector has become increasingly concentrated since the global financial crisis, a Senate inquiry was told on Wednesday.

Professor Kevin Davis, of the Australia Centre for Financial Studies, was among several witnesses who told the inquiry that the landscape of Australian banking had changed since 2007.

Professor Davis pointed not only to increased concentration in the sector, but also told the committee that "ring fencing" should be considered as part of a wider review of the banking system.

Ring fencing, as he described, was the practice of separating high-risk, high-return business units from the main business of banking and loans under a separate corporate governance structure.

While he did not go as far to suggest it should be taken up, as is being considered in the United Kingdom, he did say it should be part of the discussion.

His comments came days after the mutual funds sector released a report saying the industry was too concentrated, particularly as a result of buyouts of regional banks BankWest and St George by two of the Big Four.

That report, from Deloitte Access Economics, said regulatory emphasis on stability had swung too far and was affecting smaller credit unions and building societies ability to compete.

But Steven Munchenberg, chief executive of the Australian Bankers' Association, said any concentration in the market was due to changes resulting from the crisis, not due to actions within the domestic industry.

"We believe that our regulators and the operation of the banks have got the balance right between stability, competition and risk," he said.

"This does not mean that Australian banks are immune to the overseas developments - clearly funding costs is the most acute example."

Mr Munchenberg said while some suggested the increase concentration of the banking and finance market may have been part of acquisitions and consolidation, it came about from "economic and market practises... not from harmful practises".

The Senate inquiry will report its findings on October 1.

Topics:  banking gfc

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