The Commerce Commission will release the final report from its market study into competition in the personal banking market at 8:30am on Tuesday, August 20.
The Commission's interim report, issued in March, described the market for personal banking services as a two-tier sector, dominated by the oligopoly of ANZ, ASB, BNZ and Westpac, with limited competition and no disruptive forces to drive change and deliver consumer benefits.
Furthermore, the Commission raised hackles at the Reserve Bank by recommending the prudential regulator review its regulatory capital settings "to ensure they are competitively neutral and smaller players are better able to compete."
A second round of consultation - and lobbying - followed the interim report, and it'll be fascinating to see to what extent the Commission's recommendations in its final report differ from those in its interim report.
The Reserve Bank pushed back hard against the recommendation its regulatory capital settings be changed, as have the incumbent banks more broadly. Whilst those wanting change to the status quo are continuing to encourage the Commission in this direction.
It's important to remember the market study focuses on deposit accounts and home loans. The final report, and its recommendations will go to Commerce and Consumer Affairs Minister Andrew Bayly who has said he will; "determine what actions to take following the release of the final report.”
Additionally in June the Government announced two parliamentary select committees will hold an inquiry into banking competition, including in the business and rural banking markets. The terms of reference for this inquiry are yet to be released.
Arguably the Commission's draft report has already had an influence, with Finance Minister Nicola Willis raising the idea of Kiwibank seeking outside capital to help it better compete with the big four banks.
Below is the full list of recommendations from the Commission's draft report.
List of draft recommendations
Improve the capital position of smaller providers and Kiwibank.
1. The Reserve Bank should review its prudential capital settings to ensure they are competitively neutral and smaller players are better able to compete.
2. Kiwibank’s owner should consider what is necessary to make it a disruptive competitor, including how to provide it with access to more capital.
Accelerate progress on open banking
3. The Government should set clear deadlines and work with industry to ensure open banking is fully operational by June 2026.
4. The Government should reduce the barriers imposed by the Anti-Money Laundering and Countering Financing of Terrorism Act regime on banks working with fintechs.
Ensure the regulatory environment better supports competition
5. The Reserve Bank should use its new decision-making framework under the Deposit Takers (DT) Act to explicitly and transparently consider competitive effects.
6. The Reserve Bank should explicitly and transparently articulate how it is applying the purposes and principles of the DT Act to its Deposit Compensation Scheme levy advice.
7. The Reserve Bank should consider broadening access to Exchange Settlement Account System accounts.
8. The Government should amend the DT Act to allow the Reserve Bank to promote competition, rather than maintain competition.
9. The Government and policy makers should seek competitive neutrality across banks and other providers in their decision-making wherever possible.
10. The Credit Contracts and Consumer Finance Act should be competitively neutral with respect to home loan refinancing to make it easier for consumers to switch providers.
Empower consumers
11. Industry should create an enhanced switching service with appropriate Government oversight.
12. Home loan providers should present offers in a readily comparable manner.
13. Mortgage lenders should pro-rate all clawbacks for broker commissions and cash incentives.
14. The Financial Markets Authority should produce guidance and monitor mortgage advisors’ compliance with their duties under the Financial Markets Conduct Act.
15. Industry and Government should prioritise work to reduce the barriers to lending on Māori freehold land.
16. Industry and Government should prioritise ensuring widespread availability of basic bank accounts.
*Also see:
Parliament’s banking inquiry could kick off in August
Cameron Bagrie on why and how the pricing of risk versus the taking of risk by banks needs to change
The year of bank probes is only just getting started
Tinkering with banks' regulatory capital requirements 'small beer' from a competition perspective
RBNZ pushes back against key Commerce Commission bank competition recommendation
John Small on the Commerce Commission's recipe to tackle the banking oligopoly
Commerce Commission recommendations to boost bank competition see it push onto the RBNZ's turf
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
1 Comments
If we are serious about seeing competition in banking the answer is obvious: embrace cryptocurrencies.
The best steps to begin this process would be to remove capital gains tax from cryptocurrencies. It is virtually impossible for people to use a currency for transacting when they have to calculate capital gains/loss on every usage. And capital gains on a currency price movement (AKA exchange rate shift) is clearly a silly concept hence why we don't do it with fiat currencies.
Even if you are the biggest crypto skeptic in the world it has one clearcut use case banks empirically cannot deliver: you can be your own bank. There are risks involved with this process but at the moment people have no choice but to bank with a private financial institution if they want to operate in the digital economy at all.
Crypto will steamroll tradfi eventually anyway because natively digital money and financial institutions will outcompete pre-digital money + finance that is slashed and shoved into a digital form. But the sooner and more smoothly we begin this process the better off we will all be. Obviously the banking lobby and certain parties will be loathe to surrender the privileges controlling the money supply and commerce provide them but why cater to financial desires of a small financial minority who have been shown to abuse those privileges in countless ways?
Introducing competition into banking isn't just about competition for the user amongst private banks, it is about competition with the central banks and government-issued currencies. Within decades the idea that governments would be the sole issuers of currency/legal tender will be in history books as a quaint anachronism of a pre-digital world adjusting to a new reality.
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