When a financial services inquiry was first proposed by Joe Hockey — borrowing from an eclectic group of economists — in 2010, the banking environment was somewhat different. The banking cartel had been lifting interest rates above the RBA’s rises for a year, although few people understood that that merely meant the RBA would be slower to lift official rates and the eventual difference would be minimal. There was considerable focus on the dearth of competition in the banking system in the wake of the financial crisis, which had allowed the big banks to consume some of their nearest smaller rivals.
And there was a lot of talk of “too big to fail” — the problem on institutions that are so large, everyone knows a government won’t let them collapse during a financial crisis, giving it an implicit guarantee that enables it to access funding at a lower cost than smaller competitors and encourages riskier behaviour. In a speech back then, Hockey correctly observed: