By Gareth Vaughan
It may have been adopted by Paul Keating to maintain competition in the Australian banking sector, but the four pillars policy is now also being credited with helping protect the Australasian banking sector during the global financial crisis (GFC).
In a fresh look at global financial sector reform following the GFC, the International Monetary Fund (IMF) questions whether some country's banking systems withstood international contagion better than others because they were less globally integrated. Four countries cited by the IMF as having a relatively low degree of exposure to international banking, and who also avoided the worst of the GFC, are Australia, Canada, India and Malaysia.
The IMF notes one important policy the four countries have in common is the defacto prohibition of mergers among the major domestic banks.
"While its primary objective is to retain competition, the prohibition has prevented an increase in the size of these banks and the creation of national 'champions' that could compete with major global financial institutions. This may have been a factor limiting their banks' international activities," The IMF says.
Four pillars is an Australian federal government policy setting out that there should be no fewer than four major banks to maintain appropriate levels of competition in the banking sector. The four, - ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac, between them own New Zealand's ANZ and National banks, ASB, BNZ and Westpac.
Originally six pillars, including the big four banks plus insurers AMP and National Mutual, the policy was adopted in 1990 by then Labor Treasurer Keating. It was essentially designed to block a merger between ANZ and National Mutual. Although Keating said it would ensure a competitive banking market, bank bosses have argued the four pillars policy restricts their growth and prevents them from becoming true international players.
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