Bank mergers in the Australian financial system

The first section of the paper deals with the impact of bank mergers on the competitiveness of the industry. In order to consider this question, it is necessary to define the relevant markets. This discussion will lead to some consideration of the definition used by the ACCC in solving earlier merger proposals. Goddard and Walker (2000) give a detailed analysis of the ACCC's position on the most recent merger of the Commonwealth Bank of Australia and Colonial Limited. Earlier merger proposals did not involve two major banks, and the ACCC's attitudes have been evolving in line with changes in the financial system. This paper considers definitions that will be appropriate in the future. The next section looks at possible efficiency gains from bank mergers. This section aims at determining whether mergers will generate substantial benefits by reducing the costs of banking transactions. It concludes with a discussion of the prudential effects of bank mergers.