Measuring Competition in Australian Banking Sector - Research Paper Example

The paper "Measuring Competition in Australian Banking Sector" is a perfect example of a finance and accounting research paper. Bank competition is an important aspect of economic development. Competition is supposed to oblige banks to lower their costs and hence augment their cost efficiency, resulting in more efficient allotment of financial resources and hence more investments to inspire economic growth (Jimenez et al, 2007). Therefore, a competitive environment encourages banks to be more efficient through reduction of overhead costs, improve management of the banks, improve risk management, as well as provide innovative banking products and services. Additionally, competition in banks decreases bank market power which means that the competition should lower the cost of financial services that benefits customers. Accordingly, efficient competition in Australia is likely to have the aforementioned benefits within the banking industry, customers, and Australia as a country as well (Deloitte, 2014).

Competition in the banking industry has a ripple effect on productive efficiency in addition to innovations and services offered in the banking industry. The environment for competition in the Australian banking industry has undergone a metamorphosis (Berger et al., 2004). This is because of various factors such as the fact that Australia joined the European Union which means that the banking industry can be extended to all other EU member states by setting up branches there (Kasman, 2010). The number of players other than the four major banking players in Australia however puts the issue of competition among the banking industry players in question. According to Rob Nicholls & Carolyn Evans (2015), the model of the Australian banking system is “four-pronged”. This bank policy forms the basis under which the Australian banking industry stands. The study carried out by Rob Nicholls and Carolyn Evans also found that three-quarters of the banking industry in Australia amounts to four banks which were borne out of mergers by various banks. This has resulted in amplified concentration within the banking industry and this is a major reason as to why the banking industry experiences higher interests as well as profits, and this can tell why the Australian banking sector was not shaken by the 2008 financial crisis (Rob Nicholls & Carolyn Evans 2015).