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1 minute read
After the Australian government decided to levy an additional tax on banks that in 4 years is expected to amount to $6.2bn, share prices have dropped significantly as the banks are not expected to be capable of increasing their interest rates due to fierce competition in the market.
But analysts agree that this share drop is an overreaction as banks do have high pricing power, which they have demonstrated on numerous occasions when economic turmoil such as the Eurozone crisis or Brexit has increased the banks' own costs.
In most markets, there is a relatively small oligopoly, and big incumbent banks have a big market share. In Australia, for instance, the four biggest banks Westpac, Commonwealth Bank, National Australia Bank and ANZ Bank have 80% of the market share. When costs increase, be it a tax or a Eurozone crisis, banks need to, like any other firm, pass some of it on to the consumers. They can, and they should.
Alternatively, banks can look for other sources of revenue: PriceBeam gives you a few ideas here.
