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Big banks in collusion, says former big bank director

A former chairman of Woolworths and director of ANZ has unleashed an unprecedented spray against the big four banks — and against the big two supermarkets.

It would be no surprise to hear the big four banks and two big supermarkets have too much market power in Australia. But it is rare to hear that same line coming from a former chairman of Woolworths and director, for two decades, of ANZ.

Melbourne businessman John Dahlsen has rounded on the establishment in a confidential paper. Written in March, the submission has been given to David Murray’s Financial Services Inquiry and to Ian Harper’s Competition Policy Review.

Dahlsen’s submission is positively scathing about the lack of competition in banking and he doubts Murray will do anything about it, telling The Australian Financial Review recently the inquiry was being conducted “by bankers, on behalf of bankers, for bankers”. The FSI declined Crikey’s request for a response.

Murray’s forerunner Stan Wallis, who conducted the last inquiry into the financial services system in 1996, assumed the entry of foreign banks would increase competition. Dahlsen writes:

Not only has this not happened, but the international banks have retreated, in many cases with their assets acquired by one of the Big Four, thus increasing concentration.”

The GFC made matters worse by wiping out competition from second-tier banks, regional banks and non-bank financial institutions and resulting in a wave of new regulation linked to the concept of “too big to fail”.

Dahlsen directly accuses the big banks of collusion. The industry is becoming more and more incestuous, with executives moving from bank to bank. “Co-opetition” through payment systems and loan syndicates exacerbates the problem. A false impression of competition is nurtured deliberately, says Dahlsen:

Home loan marketing conveys to the public the idea that the competition is real. In reality, bank margins in home lending are similar and some of the highest in the world. Home loan divisions are hugely profitable.”

Tougher regulations have resulted in an overwhelming focus on risk, to the detriment of opportunity. For all-powerful credit teams within banks, there is no cost of continually saying no. All focus is on minimising downside risk; there is no measurement of unsatisfied demand. Business lending, for example, suffers chronically.

He says current architecture can’t solve the competition problem. The Australian Prudential Regulation Authority is too narrow and needs an RBA-like independent board. ASIC is overloaded and needs to be relieved of consumer protection responsibilities. The Financial Ombudsman Service is excellent but powerless. The tools of the ACCC need updating to cover complex areas like finance. Dahlsen told Crikey part of the answer might be a dedicated national “consumer super-agency” covering all industries and able to do research and disseminate reports, hold inquiries, consider law reform, relate to relevant state agencies, and consider impacts on small business.

Dahlsen draws a contrast between “collusion” in the banking industry and “collision” in the retail industry. Banking and retail are at opposite ends of the regulatory scale — banking is highly regulated, retail hardly at all. Where there is little competition on price in banking, competition on price in retail is fierce and consumers benefit. The “collision” is between retailers and their suppliers, who are often subject to conduct that Dahlsen acknowledges is unconscionable.

“If the public were truly aware of the reality of what is happening and this could be communicated and marketed, then small retailers or suppliers might have a chance of surviving. In the meantime, there will simply be a bubbling on the surface of these tough practices, which many would say are un-Australian,” Dahlsen writes. These are amazing concessions from a former chairman of our largest supermarket.

But at least retail customers are empowered by the competition. Bank customers by contrast are the victims of competition in banking, because banks don’t compete on price, they compete to minimise risk, and they deliberately leave the customer in the dark. Unlike shopping, which we do every day, our banking transactions are few and far between, and with complex financial products like mortgages or superannuation, public understanding is low.

“It is not more regulation that is required, but information, so that the consumer can understand and choose better,” Dahlsen said.

This is where Dahlsen’s submission is most surprising: he slams bank culture as data- and production-driven:

Customers can sense staff disenchantment and they see how it affects their service. On the whole banks are not great places to work. Policy tends to be top-down, with little notice taken of customer-facing employees. This exacerbates the production-driven atmosphere. Many bank staff live in fear of losing their jobs …”

Dahlsen details efforts taken under John Macfarlane at ANZ to revive a smaller-bank feel, since abandoned. The local bank manager is sadly dead and there is no bank equivalent of the supermarket store walk-through, for example, which allows feedback from customers to front-line staff to percolate back up to management.

When the CEO of Woolworths visits stores, he uses a dictaphone to record all the comments made to him by staff or customers, which then goes to support office for immediate attention. This is checked the following day to see that action is taken. A surprising number of these comments raise important issues rather than minor complaints of inconvenience. It is difficult to imagine this happening in a bank.”

The dictaphone may have been replaced by a tablet, but Dahlsen’s point is well made. The result? Banks are held in low regard by consumers (never mind the jimmied-up customer satisfaction surveys produced endlessly at the industry’s behest) and the feeling, we discover, is mutual. It is a fascinating submission.

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  • 1
    GF50
    Posted Wednesday, 3 September 2014 at 2:32 pm | Permalink

    Thanks Paddy!

  • 2
    Joe Magill
    Posted Wednesday, 3 September 2014 at 2:34 pm | Permalink

    Who would have thought that banks “compete to minimise risk”? There is a close correlation between Australia’s poor innovation and commercialisation performance and banks’ unwillingness to lend to small business, particularly manufacturing, unless the loans are underpinned by real estate security. I approached Westpac for a business faciltiy to replace CBA. Without looking at the business, the banker asked what real estate security was on offer. None was so the interview was terminated. When I asked CBA I was told that only loans to finance franchise purchases would be considered. Finance for small business??? You gotta be joking.

  • 3
    SusieQ
    Posted Wednesday, 3 September 2014 at 2:36 pm | Permalink

    Terrific article.
    I refuse to bank with the ‘big 4’ and have been with a Credit Union for years.

  • 4
    Yclept
    Posted Wednesday, 3 September 2014 at 3:25 pm | Permalink

    As if David Murray will do anything with the report. He worked hard to ensure this sort of rubbish was enshrined.

  • 5
    graybul
    Posted Wednesday, 3 September 2014 at 3:37 pm | Permalink

    Yesterday, heard from well resourced family member of Local Bank policy change: “Face to face meetings with Manager no longer available. All enquiries to be by SMS or On-line”.

    The only sane transaction with a Big Four Bank (normally confined to Clients fortunate enough to hold surplus monies) is a shareholding!!

  • 6
    Daemon
    Posted Wednesday, 3 September 2014 at 4:14 pm | Permalink

    Thankfully, we still have a bit of choice, and taking our money and cards out of the big 4 and going to the BoQ’s of the world may well help the big 4 see that at the end of the day we still exercise our rights to choose, but in fact the Australian consumer is still too damn stupid to think about much at all… political parties, why they vote, how they spend their grocery/fuel dollar and so on.

    They appear to dislike change, and tend to manage change by sticking their collective, unthinking heads up their arses, and then get treated exactly as they deserve.

  • 7
    Graham R
    Posted Wednesday, 3 September 2014 at 9:28 pm | Permalink

    Hardly surprsing, considering that the major shareholders in all four Australian banks are the same four American banks.

    Why would you compete against yourself?

    The Australian banking system, the world’s most profitable, is a cartel. I can hardly believe it is legal.

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