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How Australia's four pillars banking policy helped save the Australasian financial sector during the global financial crisis

Bonds
How Australia's four pillars banking policy helped save the Australasian financial sector during the global financial crisis

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.

Anyone looking to buy more than 15% of an Australian bank needs special approval through a process in which the authorities consider the buyer's ability to meet prudential requirements, the implications of foreign ownership, and the impact on competition.

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6 Comments

I question that pearl-of-wisdom. It's more than probable the 4 Banks were actually saved by property prices not collapsing. If you could establish WHY property prices in Australia and New Zealand held up, you might find the answer. The alternative theory is the magic pixie dust sprinkled by the 4 Banks saved the property market.

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Yep, Aussie property prices held up. But the GFC kicked off in US subprime junk. And what I take from what the IMF is saying is the Aussie banks - aside from relatively smalll exposures notably from NAB - largely stayed out of this stuff because the 4 pillars policy helped prevent them from expanding overseas.

The game has, however, changed now with ANZ pushing into Asia and the Aussie banks among the world's top 20 by market cap due to the decline of many others...

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Gareth Vaughan - maybe you should look at this link. Some of the four big Aussie banks got a bailout from the Federal Reserve. Maybe you should do some research on the Fed Reserve website. The commonly termed Dodd - Frank Act ensured that the Fed Reserve had to disclose what banks got bailout monies. The banks that received this bail-out money appear to not have disclosed this information to the ASX.

http://www.moneymorning.com.au/20120927/we-said-this-four-years-ago-but…

 

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Try this for starters

Today's Australian Bureau of Statistics (ABS) demographics release shows the population growth rate &cetera ... and net overseas migration is still accelerating. Making up the NOM rise were arrivals up by 9.5 per cent for the year to 459,800 (think about that number)

http://www.smh.com.au/business/migration-pushing-population-growth-higher-20120927-26n0t.html#ixzz27eRHKjhr

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This article is the biggest load of bollocks I've read in ages, the four pillars!!! Coule be the four colluders, or that Canda, Australia, India and Malaysia are all in one way or another added the benefit of being exposed to the faster growing developing nations and have not experienced the down turn in property prices that countries with banking issuse have experienced. 

Maybe that it was that the the four pillars had already gobbeled up all competition, when the so called four pillars legislation was introduced, to maintain some level of competition before the Ausses were down to three pillars!! Who knows, but I am sure the four pillars will be test soon enough and with sub prime lending back in vogue, pillars maybe the wrong discription and the IMF will have egg on its face again, but still the finance journalists will keep on quoting them. Have a read here. http://j.mp/Sn26qr

 

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Australians have all just won lotto.or least the Bureau of Statistics just found an additional 325 billion of houshold wealth.

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