As studies by the Australian Competition and Consumer Commission have shown, the big four banks have considerable market power. Together, for instance, they control about 80 per cent of the housing mortgage market. The biggest problem is that, in many ways, they act as a mature oligopoly. That is, one of the big four will not strongly compete by offering customers better prices as they know the others will do the same – and they will all lose. In the past, I have described their behaviour as akin to “synchronised swimming”.

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If we are serious about getting the big four to act more in their customers’ interests, we should do all we can to promote competition. The critical step is to strengthen Australia’s merger laws. Currently, to prevent anti-competitive mergers, the ACCC must provide evidence to a court that a merger will cause adverse consumer outcomes before that merger has occurred. The courts rarely accept that gaining, extending or entrenching market power will, in itself, lead to anti-competitive outcomes; commercial logic is rarely accepted.

Our merger laws need to change; they need to see the ACCC as the first-instance decision-maker, and there must be more focus on the impact of a merger on market power, not on proving there will be specific results from a merger that is yet to occur.

There are, and will be, mergers before the ACCC that involve one of the big four taking over a smaller competitor. It is better if the big four banks compete for customers rather than acquire them, and if there remain many smaller players competing to raise their market share. Stopping further big four consolidation is crucial to promoting competition and so the interests of bank customers.

Another step is to have regulatory arrangements that assist competitors to the big four, not constrain them. The size of the big four banks allows them to more easily meet regulatory hurdles, such as prudential requirements. Existing regulatory arrangements favour the big four but they need a greater focus on promoting competition and innovation.

The moral here is that there is little point in politicians and the media pleading with the big four to act against their self-interest. This will not work in banking or in other sectors. Actions, not words, are needed.

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