Don't bank on a break-up to solve the financial system's flaws

Breaking up the major Australian banks in order to boost competition would likely have a destabilising effect, and it wouldn't address the sector's biggest problem.

Former Goldman Sachs co-chairman Alastair Walton got a lot of airplay this morning with his call to break up the four major banks to boost competition and address the 'too big to fail' issue.

There’s an assumption in that call that the system isn’t sufficiently competitive and that more and smaller banks would reduce the risk and/or cost to taxpayers if a bank failed.

That’s not necessarily the case.

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