Big bank 'monopoly' nets $20 billion from customers

The big four banks are making $20 billion additional profit by gouging customers and are so powerful they are 'immune to competition', according to research.

Australia's big four banks – Westpac, National Australia Bank, Commonwealth Bank of Australia and ANZ – earned around $35 billion in underlying profits last year and now control around 90 percent of the lending market.

Around $20 billion of that profit is being booked as a result of the banks' monopoly of the payments system, an Australia Institute study says.

"With a 90 percent share of the lending market banks are immune from competition which means there’s little to stop them from passing on or increasing costs for customers and growing even more profitable over time," said David Richardson, a senior researcher at the Australia Institute.

Comment: why we need a people's bank now

Mr Richardson added that the speed with which the banks raise interest rates following changes to official interest rates by the Reserve Bank shows the banks' keenness to grab extra profits.

"The banks are using the RBA's decisions on official rates as a pretext for profit-taking," said Mr Richardson.

"While the banks suggest that their borrowing costs increase directly in line with official interest rates this is not entirely accurate. Banks rely on funds from a range of sources, including the zero interest savings and other accounts of their customers, so to suggest that their costs increase directly with increases in official interest rates is clearly an exaggeration."

He added that the banks are immune to competition which means there is nothing to stop them increasing costs for customers.

David Bell, Australian Bankers’ Association CEO, said the Australia Institute report ignores the contribution banks make to the community.

"The Australia Institute report released is a disappointing interpretation of the important role that banks in Australia played during the global financial crisis," he said.

"For an organisation that seeks 'balance' as part of it philosophy, it has produced a polemic that does nothing more than denigrate banks’ contribution to the Australian economy and community."

Mr Richardson said the government should step in and impose additional regulation on the banks.

"It is becoming increasingly clear that simply relying on market forces to reign in the profitability of the banks is doomed to fail," Mr Richardson said.

"Their market share has risen steadily since they were deregulated. It is time for governments to control access to the payments system including caps on the fees banks charge their customers. If necessary it may be useful to introduce a bank rent tax modelled on the resource rent tax."

money.ninemsn.com 5 Mar 2010