Posted by Julie Clarke on 7 November 2010
In an economic note released today, Treasurer Wayne Swan stated that the Government is in the process of developing a ‘new banking competition package’, one part of which involves ‘working closely with the ACCC to carefully and methodically design new laws to prevent price signalling’. This is not really news, but he does also indicate that more will be announced shortly on this issue.
Of course the Treasury could have addressed this issue more fully some time ago if it had ever bothered to consider submission made to its own 2009 inquiry on the ‘meaning of understanding’ under the TPA, which in part was designed to address this issue. Alternatively, it could wait until the current Senate Inquiry into Competition in the Banking Sector is complete to make a more informed contribution. So why now? Clearly politicians are falling all over themselves to be the first to implement new laws designed to ‘crack down’ on price-signalling (which nobody was particularly concerned about in the banking sector until very recently; a couple of years ago it was much more popular to attack petrol retailers over this issue). Joe Hockey got the ball rolling with his ‘9 point plan‘ to attack banks, the first ‘point’ being” ‘Let’s give the ACCC power to investigate collusive price signalling (that is, oligopolistic behaviour), which is exactly what Graeme Samuel has called for’. This was followed by his announcement on Thursday that the ‘Coalition will move to introduce a Private Members’ Bill into Parliament to give the Australian Competition and Consumer Commission (ACCC) further powers to investigate price signalling that leads to collusion and anti-competitive behaviour among the big banks’. No more substance than that, but it’s popular, so everyone now wants in on the action.
This current reactive and populist approach to reform is disappointing, if predictable. There are limitations (arguably inappropriate ones) on the extent to which tacit collusion or signalling between competitors is captured by our existing competition laws; both within the banking sector and more broadly (the apparent desire to confine reform to the banking sector makes no logical sense, but there are clear political reasons for this approach). But this is a notoriously difficult area to legislate and it’s important to get it right, lest unintended consequences result in more harm than good. Right now we have various parties vying to be seen to be the ‘toughest’ on banks, a current Senate Inquiry on the issue, and a (more sensible) 2009 inquiry which has never officially been concluded, but appears dead in the water. We dearly need a ‘Rally to Restore Sanity‘ to our approach to competition reform, which appears to have completely lost the plot in recent years and is continuing downhill …
For now, we must wait and see what they come up with and hope that any proposed law enjoys the public scrutiny it deserves before being rushed through Parliament … I am not optimistic.
In terms of price signalling generally, if you have access to the journal it’s worth having at look at a recent article on topic: R. Smith, A. Duke and D. Round, ‘Signalling, collusion and s 45 of the Trade Practices Act’ (2009) 17 Competition & Consumer Law Journal 22-42.
Update: A couple of interesting news items on topic:
Laurie Oakes, ‘Swan drops ball on Hockey Bill’ (The Sunday Times, 6 November 2010)
Oakes states in part, ‘… the [Hockey] Bill is a stunt. In an area as complex and sensitive as the financial system you can’t just throw legislation together. It requires close and detailed work of the kind Swan has been engaging in. It requires getting advice from experts the regulators which Hockey has not done, and cannot do.’
David Uren, ‘Wayne Swan Ready to Hit Banks on Exit Fees’ (The Australian, 8 November 2010) The article quotes Brent Fisse as saying (sensibly) that ‘it was alarming that both the Coalition and Labor appeared to be rushing legislation on price signalling without public consultation’. “The chances of any of them getting satisfactory laws in the short term, with a rush and without public consultation, are extremely remote”