Competition in financial services

In the financial services sector, the failure of a single institution can have a compounding effect on the sector, and on national and global economies. In particular, there is systemic risk from inter-institution lending, and this effect is more complex in Australia due to the small number of major players. In retail banking in Australia, following a similar practice in most developed countries, if an unsecured creditor is a retail depositor, their deposit is insured by the government. That is, if a retail bank fails, the Federal Government will make the depositors whole. The regulatory system, particularly the prudential regulatory system, is designed to protect depositors’ and borrowers’ interests, and this protects the interest of the government. The effect is that regulatory policy on banking has prioritised stability in consideration of the sovereign risk associated with the risk of retail bank failure. However, this approach also creates a policy dilemma. The dilemma concerns the extent to which the retail banking sector can attain the benefits of the vigorous rivalry from effective and efficient competition, without unduly risking stability and the potential of a devastating call on the public purse. Specifically, in the context of effective and efficient competition, there is limited competitiveness in retail banking in Australia. This is reflected in the static state of market share between the four major banks, and very slow and marginal improvements gains even by strong second tier competitors. Furthermore, the retail banking sector’s capacity for product and service innovation is limited. Although the absence of vigorous rivalry is conducive to stability within the retail banking sector, it is likely to detract from the welfare of retail banking consumers. Furthermore, the level of innovation may not be as high as is feasible and barriers, including prudential regulatory barriers to entry or expansion, mean that the extent of rivalry is unlikely to change without some form of promotion of competition. The paper consequently makes a four-point recommendation for the removal of the ‘four pillars’ policy:  The four major banks are protected by an implicit government guarantee that impacts market operation with little observable benefit to consumers, and may be a source of consumer disutility.  The four pillars policy has prompted increased vertical integration within the sector, particularly in the area of mortgage products.  There are sufficient merger protections provided by Part IV of the Competition and Consumer Act 2010 (Cth).  Competition and contestability arise when there are reasonably low barriers to entry and exit from the sector. It is not clear that low barriers to entry exist in Australia, and evidence to support this view comes from the failure of international banks to gain a significant toehold in the retail banking sector in Australia. One deterrent to entry is the regulatory focus on the four pillars. The authors recognise that this position is at odds with the view of the Financial System Inquiry. However, the rationale in the report of the Inquiry was to prevent mergers, and the current competition law achieves this objective. The paper recommends two specific policies to promote competition in retail banking without the structural intervention that would otherwise be required to improve the intensity of competition in the retail banking sector:  Introduce bank account number portability. This would use ‘know your customer’ and central database systems in a similar form to those that have been used for mobile number portability in Australia for the last decade and a half.  Introduce customer access to data held by banks to allow third parties to compare bank offerings across all banks.  Significantly, these two recommendations are consistent with the productivity proposals issued by the UK Government in July 2015. The research paper also examines crowd equity funding as a disruptive force in the banking sector, and recommends that crowd equity funding be permitted with the following safeguards:  ASIC should take an active role in monitoring crowd equity funding and be willing to sue in case of fraudulent action.  Any intermediary online platform should have a financial services licence with limited duty of care.  There should be a cap for business raisings through crowd equity funding of $2 million in a 12-month period.  Crowd equity funding is a social phenomenon. Through its use of social media, it has attracted people who have previously never been interested in investing in companies. Instead of being feared, this interest should be nurtured through the promotion of investors’ financial education

Rural Perspective towards Financial Inclusion

Financial Inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. For the purpose of giving such financial services in easy and convenient way government has developed many financial plans in the rural areas. These plans are helpful for people who want to access financial services. The availability of banking and payment services to the entire population without discrimination is the prime objective of this public policy. Thus the term Financial Inclusion can be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. The nations should takeover and remedy to reach the financial services to the weaker sections. So, this study has been undertaken to analyse the prospects of financial inclusion in rural areas.Keywords. Bank, Financial Services, Financial Inclusion, Rural Perspective.JEL. G20, G29, G30

Legislative Alert: FY2012 Financial Services

[Excerpt] On behalf of the AFL-CIO, I am writing to urge you to support the inclusion of five important sourcing reforms in the FY 2012 Financial Sendees appropriations bill when conferees convene on this important issue

Convergence of Corporate Governance and Islamic Financial Services Industry: Toward Islamic Financial Services Securities Market

This paper briefly discusses the significance of corporate governance for the Islamic financial services industry. Furthermore, it predicts that the Islamic financial services industry is likely to converge to modern governance practices. The paper also argues that the industry needs to have a homogenous and specialized regional securities market to realize its true potential

Including financial services in preferential trade agreements : lessons of international experience for China

The objective of this paper is to address the main considerations for China of including financial services in its preferential trade agreements. The paper briefly reviews China's financial liberalization process and the state of its domestic financial system, discusses the main considerations of including financial services in China's preferential trade agreements, compares and contrasts the different'architectural'approaches that have been used by countries to include financial services in such agreements, and identifies good practices in preparing for financial services negotiations. Particular emphasis is placed on lessons from Latin American preferential trade agreements, given their more frequent and extensive coverage of financial services compared with other regions.Emerging Markets,Banks&Banking Reform,Trade Law,Trade and Services,

Customer value creation in financial services

Customer value creation is allegedly at the centre of relationships between service recipients and service providers (such as financial service organisations in general, and commercial banks in particular). This research considers the role of customer value creation in the strategic response of banks to external changes in their growth opportunities. The analysis established that there had been changes in the framework in which banks' pursued synergy since 1980 (or 1990 in Mexican and 1992 in Estonian interviews). As a response to external change banks have created new synergies in the pursuit of greater growth and interviewees expected that changes in synergy creation should be reflected in banks' diversification and market positioning moves. New synergies required new capabilities and participants from all countries agreed that the current wave of change in synergy creation had carried through greater emphasis on customer profitability. All countries recorded a shift from a supply-oriented strategic stance to the development of skills to retain customers and even becoming a one-stop financial service institution for their customers. However, greater emphasis on customer profitability was seldom followed by recognition of the key capabilities required for high customer value creation. This as most interviewees failed to provide an articulated account of how to achieve that profitability

Leaked TISA Financial Services text: A glimpse into the future of services liberalization

This repository item contains a policy brief from the Boston University Global Economic Governance Initiative. The Global Economic Governance Initiative (GEGI) is a research program of the Center for Finance, Law & Policy, the Frederick S. Pardee Center for the Study of the Longer-Range Future, and the Frederick S. Pardee School of Global Studies. It was founded in 2008 to advance policy-relevant knowledge about governance for financial stability, human development, and the environment.News of the leaked draft text of the financial services annex of the Trade in Services Agreement (TISA) has enlivened critics and given them opportunity to discuss the substantive shortcomings of the agreement. This brief addresses how the leaked text could impact host state regulation of foreign direct investment (FDI). The TISA negotiations are attempting to make progress in services liberalization outside of the stalled WTO proceedings. Proponents recognize potential importance of such an agreement in today’s services-driven economy. However, services liberalization has not resulted in the same consistent growth as liberalizing goods trade did in the mid-20th century. Here I discuss four key provisions in the leaked draft text that threaten to destabilize the global economy by exceeding the scope and coverage of the existing services liberalization as applied to FDI. First, by extending the “right of establishment” to foreign financial service providers, they would be granted almost automatic entry into any host state that is a party to the agreement. Second, by establishing automatic coverage of any “new financial service, host states may not protect themselves from new, untested financial services in the future. Third, by prohibiting even nondiscriminatory measures, foreign financial services providers receive special protection from any regulatory measures that may affect them, even if they affect national providers similarly. Finally, under the guise of “transparency”, this new draft text gives foreign providers political power in the host state to shape future financial services regulation

Introduction to the political economy of the sub-prime crisis in Britain : constructing and contesting competence

It is almost always inadvisable to try to second-guess the character of a General Election campaign before it begins in earnest. Yet, even in today’s shadow-boxing phase in advance of the British General Election due to be called in 2010, a number of important campaign contours are already in evidence. It is one of the unwritten laws of British electoral politics that governments unravel – particularly those of a certain longevity – as events appear ever more to have spiralled out of their control. The task for the Brown Government in the upcoming General Election campaign is to try to convince voters that there is still life left within Labour despite its current travails with the credit crunch and British banks’ self-imposed entrapment in the subprime crisis. Claim and counter-claim are likely to pass between the Government and the opposition parties as to where the blame lies for the current disarray of the banking sector, whose model of regulation is most responsible and who is best placed to ensure a successful clean-up operation. Whoever is perceived to have come out on top in this debate is likely to stand a very good chance of winning the election

Ongoing Negotiations on the GATS FSA: Bangladesh’s Concerns and Position

The paper is based on the Financial Services Agreement under the GATS which was made as a result of global negotiations on financial services, including areas such as insurance, merchant and consumer banking. The study is aimed to understand Bangladesh’s position (in terms of financial liberalisation and internationalisation measures) for fulfilling the GATS and FSA requirements. The paper also gives an overview of current level of commitments by countires under the FSA, Doha agenda and ongoing negotiations, GATS commitment on financial services and policy concerns, Bangladesh’s commitment for financial services under GATS.GATS FSA, Bangladesh