The big four still have a stranglehold over borrowing in Australia. Credit:Paul Rovere But also make no mistake: it's a price well worth paying to hold great power to account. Banks occupy a unique place in Australian society - unlike that almost anywhere else in the world. The big four – ANZ, CBA, NAB and Westpac – have long been the gorillas on Australia's mortgage scene, often described as a "cosy oligopoly". Australia's banking watchdog oversees a dizzying array of 83 banks, credit unions and building societies with which Australians could theoretically choose to bank.

But when it comes to taking out a mortgage on our family homes, the startling fact is that four in five Australians opt to borrow from one of the big four banks. The global financial crisis, which crippled banks elsewhere, only increased the major four's stranglehold over the Aussie market. Amid stability concerns, regulators green-lighted the takeover of Bankwest by Commonwealth Bank. Westpac devoured St George, in what former competition tsar Allan Fels has since labelled "a mistake". "In a few short months, we saw the biggest reversal of banking competition since the Depression," Fels has said. The Rudd government's bank funding guarantee only compounded the big four's advantage, with smaller banks charged a higher premium to reflect their higher risk.

Today, Australia's big four hold 81 per cent of the total value of all outstanding mortgages on owner occupied property, up from 75 per cent pre crisis, according to data from the Australian Prudential Regulation Authority. In this post-GFC era, the banks laud their roles as pillars of stability. In the banker's mind, maintaining their record-busting profits is good for all Australians. No profit level is too much. In a recently launched campaign titled "Australian Banks belong to you", the Australian Bankers' Association stressed that 80 per cent of bank profits are returned to shareholders, who comprise mostly Australians through their superannuation. What is not mentioned is that excessive bank profitability also comes at a cost to Australians. Indeed, for most, the savings from a more competitive banking sector shaving a few extra basis points off their mortgage rate would far outweigh the benefit in retirement of a slightly bigger nest egg from outsized bank share gains.

As for stability, it's true that banks occupy a systemically important role in the Australian economy. Indeed, banks are as core a part of our financial plumbing as the sewerage pipes running under your house. Only, instead of earning a return on equity (shareholder funds invested) similar to a utility company like AGL of 7 per cent, Australia's big four banks enjoy returns of around 15 per cent. Compare that to Bank of America, which returns just 7 per cent. High returns on equity are usually an indicator of high risk. Investors must be rewarded for their gamble. Medical device company Cochlear, for example, delivers a return on its equity of 45 per cent. But how risky is an investment in a company that can't fail, by government decree?

In reality, the high returns on equity enjoyed by Australian banks owe in large part to the higher leverage they hold. Australian banks are some of the most heavily exposed to household sector debt in the world. Aussies would rather sell their kids than miss a home loan repayment. But our high household debt remains a key vulnerability, not just for banks, but the economy as a whole. Even more important, then, that the issuers of that debt be held to high account for their behaviour. That behaviour has fallen well short of acceptable standards in recent times. Time and time again, bank chiefs have been embarrassed by systemic failures within their organisations. Their financial planners have dudded customers. Their insurance arms have denied funds to the dying. Their ATMs have been unwittingly used by criminals for money laundering. Their employees have manipulated key money markets. What confidence can the public have that such failures are the exception, not the rule?

Banks have long fought the idea of a public inquiry. Instead, the Turnbull government has thrown at them a new bank levy, penalties on executives and now a victims compensation fund. Bank chiefs are hauled to Canberra twice a year to be grilled by parliamentarians. As they should be. These are not the titans of free enterprise, but the heads of key institutions in Australian society. It was the economist John Kenneth Galbraith who formulated the idea of "countervailing power". In a free market, the price of goods and services would be determined by free bargaining. In reality, markets are dogged by imbalances, such as the power imbalance between employers and employees. Some "countervailing" powers, like trade unions or consumer groups, are needed to even the field to produce efficient outcomes. And so it is with the massive power wielded by Australia's banking sector. A public inquiry would act as an important countervailing force against the banks. It would also serve to remind politicians and policy makers - who increasingly find comfortable jobs in the banking sector after departing public office - of their important role in checking the power of banks.

Any public inquiry into the banking sector must start with a recognition of the unique place banks occupy in Australian society and the critical risk banking culture, incentives and behaviour pose to the Australian economy. A too big to fail, too arrogant to front a public inquiry banking sector poses a far greater risk to the Australian community than the risk of us losing a few dollars off our super nest eggs. It's a price worth paying.