Late yesterday Wayne Swan announced he had approved Westpac’s takeover of St George.

It’s a shocker of a decision that the financial crisis in no way justifies.

Swan’s announcement, and the conditions he attached to his approval are here.

The approval was under the Financial Sector (Shareholdings) Act 1998, which is the mechanism for regulating who can own or control banks and insurance companies in Australia. In general, approval is needed for any shareholding greater than 15%, but the Act allows the Treasurer to decide that a lower level has enabled control.

Approvals for breaches of the limit are based on “the national interest.” The concept of national interest is an all-purpose tool that the Commonwealth always leaves undefined so that it can be used whenever necessary, the sort of regulatory trump card that annoys the private sector no end.

Swan has decided the merger is okay, as long as the existing retail banking apparatus is retained for the two banks and their subsidiaries for three years. After that, Westpac can do what it likes.

And, Swan suggests, the financial crisis strengthens the case for approving the merger.

The merged entity will have a larger balance sheet and capital base, as well as broader access to funding markets, making it better placed to withstand systemic shocks.

On that sort of logic, he should allow mergers between the big four banks.

The St George banking brand will also benefit from Westpac’s lower funding costs, helping it to offer lower interest rates on loans.

Which will be good, because St George’s residential mortgage interest rates are currently the same or lower than Westpac’s.

Swan based his decision in part on advice from the ACCC, which ticked the takeover in August. It was expected and received minimal press coverage.

But the decision begs the question – if the merger of the number three and number five banks in Australia isn’t a substantial lessening of competition in a sector already undergoing further consolidation, then what is? And if the “substantial lessening of competition” hurdle can be overcome so easily, what about the national interest?

The big four already behave like a cartel. They’re using the financial crisis to pick off competitors one by one, while the Government gives them the backing of a sovereign guarantee for their deposit taking and international lending.

If the Government was worried about the impact on St George’s share price of a refusal, the decision could’ve been held off until equity markets had settled. There is no statutory time limit in the Act for the Treasurer to approval an application. But the Government has lived up to the Prime Minister’s rhetoric that he currently favours stability over competition.

This is a golden era for Australia’s major bankers. They are converting a strong market position into complete dominance, with the aid and encouragement of the Commonwealth Government, which explicitly believes consolidation at the moment is a good thing. Once the financial crisis has passed, we will all start paying the price for an unchallengeable banking oligopoly. Get into bank shares now.

Peter Fray

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