The impact of the global financial crisis on competition policy in the Australian banking sector

Abstract

This article explores how the current crisis is likely to affect competition policy, in particular merger reviews in the Australian banking sector. This article also considers how and why the global financial crisis happened and the extent to which deregulation and globalisation, in opening up the financial markets to competition, may have fuelled the crisis. It also provides an overview of the laws and policies that play a part in regulating bank mergers in Australia. In particular, the article focuses on the way in which bank mergers are treated under the Trade Practices Act 1974. In Australia, bank mergers are subject to assessment by the Australian Competition and Consumer Commission (ACCC) under the Trade Practices Act. The Federal Treasurer also has powers under the Banking Act 1959 to review, and if necessary, to prevent mergers between banks. In 2008, two significant bank mergers were allowed: Westpac Banking Corporation and The St GeorgeBank Limited and Commonwealth Bank of Australia and BankWest and St Andrew's Australia. Both mergers took place in the context of one of history's worst financial crises, raising concerns about whether the Australian banking sector will see a shift in merger law and policy such that the importance of preserving financial stability will come at the cost of competition. The article also considers the possible future impact of the global financial crisis, including the impact of “rescue packages”, on competition between banks in Australia – and whether these “bailouts” make good economic sense or are likely to threaten competition between banks.