Balancing competition and stability in Australian retail banking

The Australian Government initiated two major reviews in 2014: the Financial System Inquiry and the Competition Policy Review. These have highlighted policy trade-off between competition and financial stability. Since the global financial crisis, policymakers and economic researchers internationally have highlighted the need for prudential regulation while sidelining the importance of competition. The working paper argues that competition is still essential to consumer welfare and that the evidence does not support the position that ‘competition prejudices stability’ in financial services. Instead, there is division in the academic literature and the issues are far more complex than are often assumed. This working paper uses the rich and publicly available research to consider the balance between competition and stability in the Australian context. It concludes that the evidence is that competition supports stability and that a failure to prioritise competition increases the systemic importance of large financial firm

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

Common variants in the ATM, BRCA1, BRCA2, CHEK2 and TP53 cancer susceptibility genes are unlikely to increase breast cancer risk.

INTRODUCTION: Certain rare, familial mutations in the ATM, BRCA1, BRCA2, CHEK2 or TP53 genes increase susceptibility to breast cancer but it has not, until now, been clear whether common polymorphic variants in the same genes also increase risk. METHODS: We have attempted a comprehensive, single nucleotide polymorphism (SNP)- and haplotype-tagging association study on each of these five genes in up to 4,474 breast cancer cases from the British, East Anglian SEARCH study and 4,560 controls from the EPIC-Norfolk study, using a two-stage study design. Nine tag SNPs were genotyped in ATM, together with five in BRCA1, sixteen in BRCA2, ten in CHEK2 and five in TP53, with the aim of tagging all other known, common variants. SNPs generating the common amino acid substitutions were specifically forced into the tagging set for each gene. RESULTS: No significant breast cancer associations were detected with any individual or combination of tag SNPs. CONCLUSION: It is unlikely that there are any other common variants in these genes conferring measurably increased risks of breast cancer in our study population.RIGHTS : This article is licensed under the BioMed Central licence at http://www.biomedcentral.com/about/license which is similar to the 'Creative Commons Attribution Licence'. In brief you may : copy, distribute, and display the work; make derivative works; or make commercial use of the work - under the following conditions: the original author must be given credit; for any reuse or distribution, it must be made clear to others what the license terms of this work are

Common variants in the ATM, BRCA1, BRCA2, CHEK2 and TP53 cancer susceptibility genes are unlikely to increase breast cancer risk

RIGHTS : This article is licensed under the BioMed Central licence at http://www.biomedcentral.com/about/license which is similar to the 'Creative Commons Attribution Licence'. In brief you may : copy, distribute, and display the work; make derivative works; or make commercial use of the work - under the following conditions: the original author must be given credit; for any reuse or distribution, it must be made clear to others what the license terms of this work are.Abstract Introduction Certain rare, familial mutations in the ATM, BRCA1, BRCA2, CHEK2 or TP53 genes increase susceptibility to breast cancer but it has not, until now, been clear whether common polymorphic variants in the same genes also increase risk. Methods We have attempted a comprehensive, single nucleotide polymorphism (SNP)- and haplotype-tagging association study on each of these five genes in up to 4,474 breast cancer cases from the British, East Anglian SEARCH study and 4,560 controls from the EPIC-Norfolk study, using a two-stage study design. Nine tag SNPs were genotyped in ATM, together with five in BRCA1, sixteen in BRCA2, ten in CHEK2 and five in TP53, with the aim of tagging all other known, common variants. SNPs generating the common amino acid substitutions were specifically forced into the tagging set for each gene. Results No significant breast cancer associations were detected with any individual or combination of tag SNPs. Conclusion It is unlikely that there are any other common variants in these genes conferring measurably increased risks of breast cancer in our study population

Tofacitinib as induction and maintenance therapy for ulcerative colitis

Background: Tofacitinib, an oral, small-molecule Janus kinase inhibitor, was shown to have potential efficacy as induction therapy for ulcerative colitis in a phase 2 trial. We further evaluated the efficacy of tofacitinib as induction and maintenance therapy. METHODS: We conducted three phase 3, randomized, double-blind, placebo-controlled trials of tofacitinib therapy in adults with ulcerative colitis. In the OCTAVE Induction 1 and 2 trials, 598 and 541 patients, respectively, who had moderately to severely active ulcerative colitis despite previous conventional therapy or therapy with a tumor necrosis factor antagonist were randomly assigned to receive induction therapy with tofacitinib (10 mg twice daily) or placebo for 8 weeks. The primary end point was remission at 8 weeks. In the OCTAVE Sustain trial, 593 patients who had a clinical response to induction therapy were randomly assigned to receive maintenance therapy with tofacitinib (either 5 mg or 10 mg twice daily) or placebo for 52 weeks. The primary end point was remission at 52 weeks. RESULTS: In the OCTAVE Induction 1 trial, remission at 8 weeks occurred in 18.5% of the patients in the tofacitinib group versus 8.2% in the placebo group (P=0.007); in the OCTAVE Induction 2 trial, remission occurred in 16.6% versus 3.6% (P<0.001). In the OCTAVE Sustain trial, remission at 52 weeks occurred in 34.3% of the patients in the 5-mg tofacitinib group and 40.6% in the 10-mg tofacitinib group versus 11.1% in the placebo group (P<0.001 for both comparisons with placebo). In the OCTAVE Induction 1 and 2 trials, the rates of overall infection and serious infection were higher with tofacitinib than with placebo. In the OCTAVE Sustain trial, the rate of serious infection was similar across the three treatment groups, and the rates of overall infection and herpes zoster infection were higher with tofacitinib than with placebo. Across all three trials, adjudicated nonmelanoma skin cancer occurred in five patients who received tofacitinib and in one who received placebo, and adjudicated cardiovascular events occurred in five who received tofacitinib and in none who received placebo; as compared with placebo, tofacitinib was associated with increased lipid levels. CONCLUSIONS: In patients with moderately to severely active ulcerative colitis, tofacitinib was more effective as induction and maintenance therapy than placebo. (Funded by Pfizer; OCTAVE Induction 1, OCTAVE Induction 2, and OCTAVE Sustain ClinicalTrials.gov numbers, NCT01465763 , NCT01458951 , and NCT01458574 , respectively.