Banks facing price-signal bans

Thursday, 3 March 2011  Features

Michael Pe​ters, a senior academic at the Australian School of Business has cautiously welcomed the proposed changes to the competition and consumer laws banning price signalling. However he says they may not achieve much except in the area of credit cards.

Lecturer in Business Law and Taxation at the Australian School of Business Michael Peters says "the new law is simply a rehash of EU laws."

Michael Peters has analysed similar situations and says "in the EU there was a specific issue with signals sent to the market, and this looks very similar to that proposal. Laws banning price signalling will not increase competition, and will instead just create more red tape."

The competition watchdog, soon to be armed with new powers under the Government proposal, has vowed to crack down on price signalling -- the practice of public​ly hinting at imminent price changes by the big four banks, such as increasing interest rates on home loans, or fees and charges.

Michael Peters says "in Australia it is transparent just how much it costs to buy money, process it and lend it out. The admin costs are pretty much well known, and it would be pretty obvious if there was collusion between the banks. Only in the areas of credit cards there may be some distortion and signalling, where the price can vary by much more, and where the cost base is a lot lower compared to the interest that can be earned."

The stated aims of the reform package is to increase competition in the banking sector, however he suggests that the new regulations may be coming in at a time when much more attention is being focused on the largest banks in Australia. "The elephant in the room is that the big four are so large it does not matter what competition laws are now used. It looks like they are being punished for their size and success."

Michael Peters suggests an alternative approach. He says that the lack of competition is increasing the cost of banking and home loans. "The government urgently needs to look at some form of affirmative action to level the playing field. There is ample precedent to enforce competition law. The distortion can only be changed if the government introduces aggressive affirmative action policy towards the mutuals to let them play alongside the big banks."