Balancing safety, stability, competition and efficiency: the case for Australia’s major banks


In order to set capital requirements for major banks it is important to assess the degree to which they are systemic, financially sound, competitive and efficient. Analysis suggests Australia’s major banks are large as a share of GDP and have become more so over the past two decades. The major banks have demonstrated an ability to act as ‘shock absorbers’ for the Australian economy during the GFC, have grown their market share and appear competitive based upon several measures including the relatively limited size of Australia’s shadow-banking sector. Australian banks have amongst the highest efficiency (in cost-to-income terms) in the developed world. As such, an increase in capital would position the major banks better to deal with unexpected shocks without unduly impairing their competitiveness.

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This paper was presented in July 2015 at the 20th Melbourne Money and Finance Conference (MMFC), which explored the theme The Australian Financial Sector and Global Integration.

For more papers presented in the conference, please click here.