WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-06-08 Time: 11:00:01 Posted By: News Poster
By Hilary Joffe
Johannesburg – IT WAS the beginning of the end of a marathon process, which began more than five years ago with widespread complaints about high bank charges, and reached the final stretch last week when Finance Minister Pravin Gordhan agreed with SA’s big banks that they would do more to ensure a competitive market.
The meeting was the formal response to the Jali panel that spent two years probing competition in banking, releasing its final report in December.
Although Gordhan made it clear banks must give consumers real choice, by disclosing charges and making it easy to switch banks, he steered clear of prescribing how they should compete or what they should charge. And though competition was supposedly the main purpose of the meeting, Gordhan and the bankers didn’t spend all that much time discussing it. Most of their time was spent on talk of global developments, particularly on the post-crisis proposals on bank regulation that are coming thick and fast from entities such as the Group of 20.
In a way, that sums up how much the world has changed since the banking inquiry began. It’s not that competition isn’t important. The bankers seem to have agreed quite readily last week that they could and should do more. But in the wake of the crisis, financial stability looms larger. And that suggests that, when it comes to competition, we should be careful what we wish for.
As we were reminded again last week, SA was one of only a handful of countries whose banking systems survived the financial crisis unscathed. Canada was another.
Our track record through the crisis was one reason SA was ranked number six in the world on “soundness of banks” in the World Economic Forum’s global competitiveness survey this year, even though our overall competitiveness ranking was only 45.
Canada cracked the top spot on banking soundness, followed by New Zealand, Australia, Chile, Hong Kong and SA. The US was way down the banking soundness list at 108 (of a total of 133).
Look at the list of survivors, though, and you have to ask questions about competition in banking. One thing that SA, Canada and Australia have in common is that their banking industries are highly concentrated. Our own “big four” banks account for nearly 85% of the banking sector’s total assets. In Canada, the top five have about 90% of the market. Australia’s market is also dominated by a “big four” that account for about three quarters of banking assets and 90% of home loans.
Why might concentration have been a good thing in the crisis? One obvious reason is that it’s fairly easy to regulate banks soundly when you have only a limited number of banks to regulate. Our big banks very definitely are “too big to fail” – the risk that now so terrifies US and European policy makers – but on the other hand it’s not that hard for the banking regulator to keep tabs on all of them almost all of the time.
Nor is it difficult for the central bank to watch what’s going through the money market and the national payments system from each of the big banks.
And, of course, if the finance minister wants to chat to everyone in the sector who is systemically important, he can do so around a dinner table – as he did last week, and apparently plans to do again.
If there are only five custodians of a country’s deposits, that also means that if any of them runs short of cash on any given day they have only four phone calls to make. So if there were any liquidity troubles during the crisis, the banks could sort them out quite quickly among themselves.
Concentration doesn’t have to mean no competition: the competition for market share among the big four or five may even be fiercer because they know they are already so big that regulators are unlikely to allow them to get any bigger by merger or acquisition. But it does mean competition takes a different, more regulated form, and players don’t face so much margin pressure that they have to take ever more exotic risks to survive.
It may mean, too, that the players don’t need to collude: the market is so concentrated that everyone knows what everyone else is doing anyway.
So does all that mean our bank charges are too high, even though the competition probe couldn’t prove it, despite hundreds of hours of testimony and hundreds of pages of evidence?
But in the wake of the financial crisis, even bank charges, and bank profitability, may need to be looked at differently. SA’s banks are well capitalised, with ratios that are well above the levels that are now being proposed internationally. Where in Europe and the US banks will struggle to raise the capital to comply with new requirements, here there’s no issue: South African banks have actually increased their capital and improved their ratios over the past couple of years.
To what extent did appropriate bank fees enable them to do that? It’s a question that’s certainly worth asking. Did our banks charge too much? Or did all those banks that failed in the US and Europe charge much too little for the risk they took on?
It’s not that competition isn’t crucial, in banking as in other sectors, to keep companies efficient and innovative and ensure they respond to the needs of their customers. But the risks in banking are different, as the world has learned to its cost in the past couple of years. Finding the balance between competition and stability is a complex business.
Joffe is senior associate editor.
Original Source: 
Original date published: 8 June 2010
Source: http://allafrica.com/stories/201006080577.html?viewall=1