Drawing on your knowledge of the theory of market structure - supplemented by appropriate media reports - comment on the statement of ACCC Chairman, Rod Sims, that the Australian finance sector is 'a cozy banking oligopoly' and explain what action could be undertaken to overcome the problems created by this situation

It is necessary that we start our analysis about existing an oligopolistic structure in the Australian banking system and the quote of Rod Sims, by a brief look at the banking system in this country.

In Australia, four major banks namely Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank have ascendancy over the banking system in this country. All four banks are ranked in the list of world's largest banks by market capitalization. The banking system in this country is highly regulated and these four big banks are supporting by the Australia central band. Based on these supports, these four banks have an excellent rank in international ranking and are categorized between the safest banks in the world. Based on the wide range of supports from these four big banks and their high market share, Rod Sims, Chairman of the Australian Competition and Consumer Commission, expressed concerns that the four big banks are increasingly resembling a cozy oligopoly due to their large market share, which has increased to more than 75%. Definitely, this high market share and also governmental supports from these for big banks create an oligopolistic structure in the banking sector in Australia.

Sims' statement is completely based on this oligopolistic environment and comes out of the fear of reducing competition in the banking sector. Indeed, these four banks enjoy lower funding costs in exchange for an implicit government guarantee of saving the banks if they fail. The merger of Westpac with St. George Bank in 2008 allowed it to become the market leader with more than 20% of the market share. This environment is not encouraging for smaller financial institutions and if the guarantees were to the removed, the government will have to ensure the safety of these big players in the market.

Based on this oligopolistic behavior in the banking system, the Australian Competition and Consumer Commission (ACCC) will be continuing the prosecution of Australia and New Zealand Banking Group, Deutsche Bank, Citigroup, and 6 more bankers on charges of criminal cartel conduct, as per reports.

The steps that can be undertaken to overcome the problem is to ensure that no more mergers and acquisitions take place in the financial sector. Even though the competition isn't harmed beyond repair, increasing vertical integration and market concentration poses a great challenge to maintaining competition in the sector. Hence, proactive monitoring is essential.