This Information Sheet aims to give you an overview of:

• The history of the Four Pillars policy;

• The key arguments for the retention of the policy;

• The potential impact of a change to the policy; and

• The ways the FSU believes the policy should be strengthened and improved.

The History of Four Pillars

Four Pillars began as a Six Pillars policy in 1990 when the Keating Government announced that no mergers would be allowed between any of the four major banks and two major life insurance companies – the six pillars of the Australian financial system.

It became Four Pillars when the current government announced its response to the final report of the Financial System Inquiry in 1997. The current policy is that no mergers will be permitted between the four major banks unless there is evidence of increased competition particularly for small to medium business enterprises

The policy is based on the Treasurer’s power under s.63 of the Banking Act (C’W). This power exists in addition to the ACCC’s power to prevent mergers on competition grounds under the Trade Practices Act (C’W).

Key arguments for Four Pillars

The key arguments for the retention of the policy are:

• Australia already has one of the most concentrated banking markets in the world and further mergers would lead to greater concentration. This would be bad for consumers, for employment and may threaten financial stability.

• If one major bank were allowed to merge with another, the scenario would likely be that the remaining two major banks would also need to merge to compete. This would further diminish competition, access for consumers, and employment.

• It is important that the Government of the day is politically accountable for a decision to allow a bank merger. If the decision were left solely to the ACCC there would be less scope for arguments based on public interest considerations such as the impact of job losses and branch closures on the community.

• There is a substantial body of evidence suggesting that large scale mergers do not produce the efficiencies of scale that are usually touted as justifying them.

The impact of the collapse of Four Pillars

The impact of the collapse of Four Pillars would be devastating for the whole community but particularly for bank employees. A good guide to the numbers of jobs likely to be lost is the number lost in previous mergers. This table shows the jobs lost in the last three major mergers.

Job Loss as a result of mergers

Merger - Jobs Lost

Commonwealth/State Bank of Victoria - 8000
Westpac/ Bank of Melbourne - 1400
Commonwealth/ Colonial - 4500

Source: FSU estimates

On this basis anywhere between 10,000 and 20,000 bank jobs could be lost were four pillars to collapse and the four big banks to become two big banks.

Branches

Hundreds of branches would also close were the four big banks to become two. Previous mergers demonstrate the devastating effect on branch numbers. The Commonwealth Bank / State Bank of Victoria merger lead to the closure of around 300 branches and the Westpac and Bank of Melbourne merger reduced branch numbers by about 130.

FSU estimates that if the big four banks were to become two, over 400 bank branches would be lost in rural, regional and remote Australia alone. Over 150 branches in New South Wales would be closed, over 100 in Victoria, over 75 in Queensland, over 20 in South Australia, over 25 in Western Australia and over 10 in Tasmania.

FSU Policy on Four Pillars

FSU believes that there is a need for greater accountability in the Four Pillars policy.

The policy must be retained and should be underpinned by a legislative requirement that a transparent public interest test is built into the merger assessment process. The FSU believes that before the Treasurer exercises his/her power to allow a merger, there must be:

• An investigation of the impact on employment and communities, particularly rural and regional communities; and

• A reasonable period for community consultation.

FSU believes that there must be the power to prevent mergers on the grounds that they are not in the public interest and the effect on jobs and communities must be a paramount public interest consideration. FSU has done extensive lobbying in the past on this issue and will continue to do all it can to ensure the Four Pillars policy remains.