AUSTRALIA'S banks have been shortchanging home loan customers for years, and especially since the onset of the global financial crisis, a landmark study has found.
The study published in the prestigious Economic Record finds that when the Reserve Bank increases interest rates, the banks respond with rate rises quickly which, on average, exceed the increase by the central bank.
The stubborn strength of the Aussie dollar
Business columnist Malcolm Maiden takes a look at the news in this week's business market.
By contrast, when the Reserve drops rates, the banks move more slowly and fail to pass on the full amount to the mortgagor.
A rate increase, the report concluded, has "a much larger and more instantaneous impact on the mortgage rate than rate cuts".
Using monthly Reserve Bank statistics on its cash rate and mortgage rates over the two decades to 2011 the paper finds on average Australian banks have passed on 116 per cent of each rate rise and only 84 per cent of each cut.
The results reflect what the authors call "asymmetries'' in both the speed and size of the banks' reactions, with the banks typically slow and stingy about passing on cuts and fast and enthusiastic about more than passing on rate hikes.
Separate research currently being conducted by the lead author Associate Professor Abbas Valadkhani of the University of Wollongong finds that almost all of the asymmetry emerged after the 2008 global financial crisis.
"Before the crisis the gap between the Reserve Bank cash rate and each of the standard variable rates was basically constant - afterwards it widened dramatically," he told the Herald.
So dramatic is the change that in the five years after the crisis each of the big four banks has charged a higher average rate than before the crisis, despite the average Reserve Bank cash rate being lower.
"For instance the Commonwealth Bank has charged an average of 7.47 per cent since the crisis, 7.13 before. Yet the cash rate has averaged 4.72 per cent since the crisis, 5.33 per cent before. If the Banks were following the Reserve Bank the difference would be exactly the other way around."
Professor Valadkhani finds before the crisis each of the big four moved their rates together - "they were so close that on a graph the moves were indistinguishable" - but after the crisis they diverge.
Westpac became clearly the "least friendly" with an average mark up over the cash rate of 3.52 percentage points, the National Australia Bank the most friendly with a mark up of 3.15 points. In the middle were the ANZ and Commonwealth with mark ups of 3.39 and 3.26 points.
But Professor Valadkhani says there was substantial evidence of coordination. "By coordination I do not necessarily mean they talked to each other," he told the Herald. "They might have independent decisions to copy each other."
He finds whenever a bank has moved away from the pack in the length of time it has taken to respond to a rate move it has done it with at least one other.
"There is always at least a pair," he said. "Each of the big four has at one time or another followed each of the other big four - except for one pairing. The NAB has never followed the Commonwealth and the Commonwealth has never followed the NAB. It's as if those two don't know each other."
Each of the big four yesterday left mortgage rates unchanged.