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New Zealand’s banking industry lacks competition, but there’s no easy fix

Summarised by Centrist

NZ’s big banks are too big! There is now a two-tier banking system with the Australian owned big four taking the lion’s share of profits, while the domestic banks trail far behind. There’s not enough competition, but breaking up the big guys into small ones can also pose a risk to a country’s financial stability.

The New Zealand Commerce Commission’s draft report on the banking industry notes the lack of competition, dominated by four major banks (ANZ, ASB, BNZ, Westpac). 

The large size gap between big and small banks creates significant advantages for the former. This disparity leads to limited competition and innovation. This includes being able to spread risk internationally and pay for expensive cybersecurity features to protect customers.

Solutions like government support for Kiwibank or the emergence of new financial technology (fintech) may not resolve the core issues. Government intervention, no matter how well intentioned, carries risks.  

“Infusing billions of dollars in the hope and expectation of turning the bank into a disrupter is playing with fire. Disruption implies an elevated risk that ultimately can affect the stability of the banking system,” says Victoria University economist Martin Lubberink.

Lessons from 2008’s Great Financial Crisis warn against over-reliance on deregulation or capital infusion as remedies. 

According to Lubberink, the focus should shift to inclusive reforms like real-time transfers, open banking, and consumer empowerment for a modern, customer-centric banking system. 

Read more over at The Conversation

Image: Stephen Day

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