How these things will change the way you approach the big four banks.
The Big Four banks in Australia, the Commonwealth Bank, Westpac, ANZ and NAB play a key role in the Australian economy and have the financial stability to keep your home loan safe. They are well managed, regulated and hold nearly 85% of the home loan market share between them.
Compare home loans from the big four banks and others to find the right deal for you
What we've learned from the Global Financial Crisis
The issue of financial stability has been a hot topic since the Global Financial Crisis (GFC). Bear Stearns was purchased by JPMorgan Chase for just $10 per share in March 2008. In September later that year, two government-chartered lenders Freddie Mac and Fannie Mae were placed in the care of the US government. The Lehman Brothers collapsed not long after and Merrill Lynch soon sold itself to Bank of America. In Australia the impacts were felt too, the Commonwealth Bank acquired Bankwest and Westpac acquired St.George.
Since then, Australians have been more aware about the financial security of their loans and products, looking for some sort of guarantee or protection should their bank go bust.
However, it could be wise to borrow outside the safety of the big four banks. Many smaller lenders have competitive interest rates and more flexible terms than the major banks. With the Gillard Government banning exit fees, it provides you with more leverage and choice to refinance to a better home loan.
During the GFC, the introduction of the Government guarantee of bank deposits also prompted the myth that lenders beside the big four were unsafe, however, the guarantee only extends to deposits and not loans.Back to top
All registered financial institutions are regulated to absorb financial shocks
All registered financial institutions including credit unions, second tier lenders, online lenders and building societies are regulated by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).
APRA is responsible for the prudential supervision of authorised deposit-taking institutions, such as implementing the Basel reforms to ensure that financial institutions are more resilient to economic shocks. Financial institutions are required to hold a certain portion of capital, as they provide a permanent commitment of funds and are available to absorb losses.Back to top
Pros and considerations of the big four banks
- Large ATM network and more branches
- Competition between the big four is very high, so if one reduces their rates, the other three will likely do it too
- Biggest market share (also a consideration)
- Tend to be more financially stable
- Offer better packaged loans and rates
- Don't really specialise in non-conforming loans
- More trust from the borrower
- Have migrant banking services for non-residents
- Tend to have higher interest rates
- Tend to lack in customer service
Frequently asked questions
Will the big four ever end?
If borrowers start looking elsewhere for a better deal, the big four may have to change their game plan.
Does the big four have any subsidiaries?
- Westpac is associated with St.George, Bank of Melbourne, BankSA and RAMS.
- Commonwealth Bank holds Bankwest
- NAB is associated with UBank
Are there any alternatives to the big four?
You may want to consider international banks such as Citibank and HSBC. There is also ME Bank, Bendigo Bank, Bank of Queensland, ING Direct, Bankmecu or Suncorp.
Why are the big four so bad?
The big four can be seen in a negative light for some due to their high margins and profits. Some consumers argue that these banks only exist to reap in profits.
Photo: Sydney Morning Herald