The impact of regulation on credit card market competition: evidence from Australia

Using an error-correction style ARDL model and bounds tests for co-integration, we examine the impact of credit card reform on the relationship between credit card interest rates and funding costs in Australia. Our results show that after a major reform was carried out in the early 2000s, Australian banks reduced the spread between credit card lending rates and deposit rates. In both the long term and the short term, credit card rates were more responsive to changes in the cost of funds. However, after the outbreak of the GFC, the impact of the reform has been more than reversed and there is no evidence further reforms have bucked this trend.