At CAPE, we've long beaten our drum against the major banks. Whether it's because they refuse to take action against senior executives guilty of gross misconduct, or their seeming fixation on profits at the expense of ethical behaviour, the Big Four know how to court controversy – and for all the wrong reasons. Even their collective name – the Big Four – evokes images of fat cat bankers in pinstripe suits who'll think nothing of stepping on anyone and anything to get their hands on the largest amount of cash. But just how big are the Big Four? Too big, according to a new report.
Big, bloated and bad
During the first half of the financial year, Australia's major banks posted cash earnings of a staggering $15 billion. This enormous figure is all the more unbelievable when you consider that the four institutions focus overwhelmingly on the relatively miniscule Australian market. According to The Australia Institute, the four major banks made over $25 billion in pre-tax earnings between them in 2015, the sixth-highest in the world. Even so, countries ranked above Australia on this financial league table – China, the United States, Japan and the like – all have far higher populations than Oz does, and their banks have large global operations, too.
The four major banks made over $25 billion in pre-tax earnings between them in 2015.
Were you to rearrange that league table by bank profit share as a percentage of GDP, there's an Australia-shaped country at the top of the pile. So, with our big banks making monster profits (and thus, able to pay their top brass obscene amounts of money) you might imagine that at least they are doing some good – helping to finance a nation bursting with innovation and ideas, perhaps? Well, not really.
You see, Australia's top minds are now attracted to the high-end of the banking industry because of the massive financial rewards on offer, according to BIS Monetary and Economic Department's Stephen Cecchetti and Enisse Kharroubi, in a press release.
"Finance literally bids rocket scientists away from the satellite industry. The result is that people who might have become scientists, who in another age dreamed of curing cancer or flying to Mars, today dream of becoming hedge fund managers," the release said.
As such,who knows how many of Australia's brightest minds have been harnessed by the banks, rather than realising their true potential?
In total, the Big Four have assets in excess of $4 trillion. When you consider that Australia's GDP sits at just over $1.6 trillion, you can see how bloated and out of control the Aussie banking sector has become.