Why Australia Has Only Four Big Banks: Inside the Four Pillars Oligopoly

Australia has one of the most concentrated banking markets in the developed world, and it was built deliberately. Understanding why matters for anyone analysing Australian financial services, because almost every feature of the sector — the high returns, the low failure rate, the recurring conduct scandals, the political sensitivity of interest rate decisions — follows from market structure rather than from the banks themselves.

Why does Australia only have four big banks?

Because the market is small and the regulatory settings reward scale. Australia has roughly 27 million people spread across a continent, and running a national branch, payments and compliance infrastructure carries a large fixed cost. Four institutions can each achieve full national coverage; twelve cannot do so profitably.

The four pillars policy then froze that structure. Announced in 1990 as a “six pillars” policy and narrowed to four after the majors absorbed two large insurers, it prevents any merger among CBA, Westpac, NAB and ANZ. It is not enshrined in legislation, which means a government could abandon it — but none has, because the political cost of approving a three-bank market would be severe.

Prudential capital rules reinforce the outcome. The majors use internal ratings-based models that assign lower risk weights to residential mortgages than the standardised approach available to smaller banks, meaning a major can hold less capital against the same loan. APRA has narrowed that gap, but a structural funding and capital advantage remains.

How different are the four banks really?

More than the “Big Four” label suggests. CBA is the largest and most retail-focused, with the strongest deposit franchise and the highest returns. Westpac, founded in 1817 as the Bank of New South Wales and Australia’s oldest bank, is second by assets with a large mortgage book and multiple brands. NAB is the dominant business bank, which gives it a different credit cycle and a different customer mix. ANZ is the smallest of the four and the most internationally oriented through its institutional franchise across Asia and New Zealand.

Capital positions in the most recent reporting half were broadly comparable — CBA at 11.6% CET1, ANZ at 12.39%, NAB at 11.65% and Westpac at 12.4% — all comfortably above regulatory minimums. Where they diverge is in technology programmes: CBA’s modernisation and generative AI work, ANZ’s single customer front-end and Suncorp integration, NAB’s systems consolidation and Westpac’s UNITE simplification programme are the main differentiators analysts now watch.

Leadership has turned over substantially. Matt Comyn continues at CBA, Andrew Irvine leads NAB, Anthony Miller runs Westpac and Nuno Matos arrived at ANZ in 2025 from HSBC. Three of the four are running large-scale simplification programmes at the same time, which is unusual and expensive.

What did the ANZ-Suncorp deal change?

It was the first material consolidation in Australian retail banking in years and it took two years to clear. ANZ agreed in July 2022 to buy Suncorp’s banking arm for about A$4.9 billion. The ACCC blocked it on competition grounds, the Australian Competition Tribunal overturned that decision in February 2024, and the Treasurer approved it in June 2024.

The commercial rationale was scale in home lending. ANZ ranked fourth in mortgages with about 13.5% share; the combined entity moved to roughly 16%, lifting ANZ past NAB into third place and taking group assets past A$800 billion. In a market where funding cost and operating leverage depend on volume, buying a A$50 billion loan book was faster than growing one.

The Tribunal’s reasoning is the interesting part for competition analysis: it found the incremental share gain was too small to substantially lessen competition, given the number of alternative lenders available to borrowers. Critics argued the opposite — that removing a mid-sized regional competitor entrenches the oligopoly regardless of arithmetic. Both positions are defensible, which is precisely why the deal took two years.

Who is actually taking market share?

Not the traditional challengers. The most consistent share gains have come from Macquarie, which has grown its home loan book past A$130 billion and household deposits at multiples of system growth, using a digital-first, broker-heavy model with a low branch footprint.

Mortgage brokers are the other structural shift. Broker-originated loans now dominate new lending at several majors — at Westpac they rose from 52% of new loans in 2023 to 67.5% in 2025, and at ANZ from 64% to 67% — while NAB pushed the other way, cutting broker share from 65% to about 59%. Brokers commoditise the product and shift power to whichever lender offers the best rate that week.

That is why all four majors are now trying to rebuild proprietary distribution. NAB has said proprietary home lending returns 20–30% more than broker-originated loans, and Westpac has publicly acknowledged losing too many home finance managers. Hiring branch and mobile lenders in 2026 is an admission that a decade of cost-cutting in distribution went too far.

How are the majors regulated?

By APRA for prudential soundness, ASIC for conduct and disclosure, the ACCC for competition, AUSTRAC for anti-money-laundering, and the RBA for payments and monetary policy. That is five regulators, and the overlaps are a genuine compliance burden.

APRA’s tools include the “unquestionably strong” capital benchmark, macroprudential limits on higher-risk lending such as serviceability buffers on new mortgages, and the power to impose additional capital requirements when it finds governance or risk failures. It has used that last power repeatedly, including against CBA, Westpac and Macquarie.

There is also a fiscal claim: the major bank levy, introduced in 2017, charges the largest banks a small annual percentage of certain liabilities. It applies only to institutions above a size threshold, which makes it a deliberate tax on being systemically important — and, arguably, a small subsidy to the challengers who fall below it.

Is the concentrated model good for Australia?

The honest answer is that it trades competition for stability, and reasonable people weight those differently. No large Australian bank failed during the global financial crisis, depositors never faced loss, and credit continued flowing through the pandemic. That resilience has real economic value and it is partly a consequence of concentration and high capital.

The cost is pricing power. ASIC has found that existing customers at the majors typically pay 0.30% to 0.50% more on their mortgages than new customers at the same bank — the so-called loyalty tax, which is only sustainable in a market where switching is inconvenient and alternatives are less visible. Smaller lenders consistently offer better advertised rates.

The structural question now is whether the era that made this model so profitable is ending. Analysts have started describing current conditions as the fading of a thirty-year housing super-cycle, with margins, credit quality and valuation moving unfavourably at once. If credit growth slows permanently, four banks built for expansion will have to compete on cost and share instead — which is a very different game. Our guide to Australian mortgage economics explains what that means for earnings.

What would actually increase competition?

Three levers are regularly proposed, and they differ enormously in likely effect. The first is capital equalisation — narrowing the gap between the risk weights the majors apply through internal models and those smaller banks must use under the standardised approach. APRA has already closed part of that gap, and further movement would directly improve challenger economics.

The second is reducing switching friction. Open banking and the Consumer Data Right were designed to let customers move their financial data, and therefore their business, between institutions easily. Adoption has been slower than intended, largely because the process still requires effort from customers who are not actively unhappy. A fully portable account number, as some jurisdictions have considered, would be far more disruptive.

The third is allowing new entrants to reach scale. Australia licensed several restricted banking licences for neobanks in the late 2010s, and most subsequently failed, were acquired, or handed their licence back. The lesson was that deposit-gathering without a lending engine, and lending without cheap deposits, are both unsustainable — which is precisely the structural barrier that protects the incumbents.

None of these changes the fundamental arithmetic. A bank needs cheap funding, low-cost distribution and capital efficiency to compete on price, and only Macquarie has assembled all three at scale. Competition policy can reduce the incumbents’ advantage at the margin; it cannot manufacture a fifth pillar.

How do the majors fund themselves?

Predominantly through customer deposits, supplemented by domestic and offshore wholesale debt issuance. The deposit share has risen steadily since the global financial crisis, partly because regulators pushed banks toward stable funding through the net stable funding ratio and partly because deposits proved so much cheaper than the alternative.

Offshore wholesale funding remains the structural vulnerability. Australian banks lend more than domestic deposits can fund, so the gap is filled in international debt markets, largely in foreign currency and hedged back into Australian dollars. In normal conditions this is routine; in a global funding freeze it becomes the transmission channel through which an offshore crisis reaches Australian borrowers.

That exposure is precisely why the four are supervised as systemically important, hold higher capital, and were supported by government guarantees during the 2008 crisis. The concentration that makes the sector profitable is also what makes it a matter of national economic security.

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