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High tide for bank whingers

Complaints about the banks are misplaced, Michael Pascoe says.

Complaints about the banks are misplaced, Michael Pascoe says. Photo: Jessica Hromas

Like a king tide coinciding with a storm surge, the combination of record bank interim profits and their delay in announcing interest rate reductions that will be less than the RBA's cash rate cut means we're set to be flooded by whingers banging on about bank greed and mortgage burdens.

Inevitably led by politicians who pretend to know no better and whipped along by tabloid media that just don't know, the whingers' tide crests with every profit and interest rate announcement.

Even people who do know better sometimes get caught up in it, an esteemed colleague writing: “Monetary policy is now the domain of the banks, not the RBA.”

Um, no, that's not correct. The RBA targets what people actually pay and adjusts its cash rate with an allowance for the banks' moves to cover increased funding costs. The Governor told us so (http://www.rba.gov.au/media-releases/2012/mr-12-10.html ) just yesterday and it's always been the case.

Not that Wayne Swan or Joe Hockey would ever want to acknowledge that as it would remove a plank from their bank-bashing platform. The political pressure on the banks to pass on the cash rate trimming “in full” is as phoney as all the voices now wanting to take credit for “pushing” the RBA to move by 50 points.

And as to the banks taking a little time to make an important competitive decision about their lending rates, exactly what is wrong with that? There's a game of cat and mouse to be played out by the big four in their marketing positions where each point is worth millions.

Eventually, on average, we'll get an interest rate cut of about the size the RBA wants to see. In the process, hopefully we'll also see a little more differentiation in the banking club, with decisions appropriately reflecting their books and competitive drive.

The ANZ's hairy-chestedness at one end and the NAB's marketing pitch at the other represent a healthy evolution away from the cartel.

Free choice, remember?

We enjoy the great benefits of a more-or-less free market system, a system that depends on making choices from time to time.

The banks' fortunes rise a little or a lot depending on the choices their managements and their customers make. And if any individual's financial health depends on a week here or there on a 38-point mortgage movement, well, they obviously have much bigger financial problems that need dealing with.

The business about whether the banks have been fibbing over their funding costs has become tiresome. If it's a choice between a private bank analyst's guess and the work done by the RBA and APRA with the access they have to the banks' books, I'll go with the RBA.

Joe Hockey's suggested referee on bank funding costs has ruled that the banks' funding costs have indeed risen, but not by a lot and that they may fall again down the track. Or not. It's just unfortunate that the RBA's ruling has been regularly misreported.

Myths

There's not a big difference between our main lenders - they're all big, strong and predominantly reflect the health of the Australian economy - but there are differences.

To make the most of those differences, it comes down to the bargaining power and willingness of the individual customers. Some have little or none of either, some do.

In accessing the differences, one of most common mistakes is to look at the published “standard variable mortgage” rate.

It's the figure constantly reported and it actually doesn't mean much at all aside from it being a yardstick for movements in the various shades of discounted loans already outstanding.

Any attempt to compare average interest rates across the years relying on the somewhat mythical standard variable mortgage rate is bound to be flawed as the level of discounting from that rate has also changed.

And then we get to those big banks' big profits.

Don't get envious, get even - own bank shares and enjoy a much higher and more sustainable pre-tax yield than on offer for any deposits. If you don't like paying bank fees, as an average customer you rarely have to as long as you're prepared to bank intelligently.

But it's much easier just to go with the whingers, to take the populist line and try to blame someone, anyone else for perceived troubles. It's a national sport.

Michael Pascoe is a BusinessDay contributing editor whose family super fund happily holds bank shares.

 

145 comments

  • The big 4 now represent an undemocratic tax on commerce, and a Banking Super Profits tax is needed on this industry which is taxing the country for the privilege of a select few.

    Commenter
    Jimmy Oz
    Location
    Sydney
    Date and time
    May 02, 2012, 1:03PM
    • Why? Because you say so?

      Commenter
      David
      Location
      Sydney
      Date and time
      May 02, 2012, 1:25PM
    • Yes, lets increase tax on any industry that is successful. Particularly banks whose shares & dividends are a significant component of the superannuatiuons of millions of Australians. Great idea Jimmy Oz...NOT!!!

      Commenter
      Alan C
      Location
      Melbourne
      Date and time
      May 02, 2012, 1:38PM
    • Quite right, and let us remember the ones who don't pass it on when everything hits the fan again. Strange how "Big govrnment" suddenly became not big enough when the taxpayers' money was needed. Now they're biting us on the ankle like the hogs they are.

      Commenter
      oldon34
      Date and time
      May 02, 2012, 1:48PM
    • Never fails to amaze me the amount of people completely duped by banker propaganda, prepared to stand up for businesses that just do as they please. What next - praise for the sucess of the Mafia ? These 'hard-working, successful' Australians are the beneficiary of an oligopolistic banking structure, weak regulation and weak governments. Are we supposed to sit back and applaud their arrogance because they comprise 25% of our sharemarket ?

      Commenter
      Jim
      Date and time
      May 02, 2012, 2:01PM
    • Yes, tax this profitable industry because while millions of Australians might own a percentage of the profits generated via Australian commerce, its the rich who own the greater share. Essentially the banks are acting as a way to funnel money back towards the more affluent through their operations.

      The article doesn't address the issue of who is paying for the record profits the banks generate and who profits from it. Remember the Banking & Finance industry essentially provides three services: professional advice, banking services, and the transfer of funds from lenders to borrowers. They either charge either a flat fee or a percentage to provide those services, they're charging at record levels, while the non-mining producers of goods are haemorrhaging jobs.

      I don't see it as good for the economy in the long run to keep funnelling money towards banking profits and don't see that "own bank shares" is a suitable solution.

      Commenter
      Jimmy Oz
      Location
      Sydney
      Date and time
      May 02, 2012, 2:20PM
    • Agreed....Banking in Australia is a protected species ie: GFC banks get support to ensure no collapse. It's the ole' socialise us when then things are bad but let us run free when things are good. This must be a two edged sword. Super profits tax to apply on banks or they must be allowed to collapse when things get tough. Why the benefits without the costs.
      My business and many others got ZERO support during the GFC, that's ok, but lets not pick favourites.

      Commenter
      Jim
      Location
      Bayside
      Date and time
      May 02, 2012, 2:23PM
    • I never hear of anyone complaining about Apples profits which are the same as the Big 4's profits COMBINED.
      You use a service, you pay a fee.
      Shop around if you dont like it.
      Or - now here is an unpopular thought - live within your means and dont borrow money.

      Commenter
      Michael
      Location
      WA
      Date and time
      May 02, 2012, 2:31PM
    • Michael,
      Well put, do people also realise that with a strong banking
      system our deposits are safe and we do not have to presently
      at least worry about the bank going bust like those in other
      parts of the world.

      Commenter
      Mars Bar
      Date and time
      May 02, 2012, 2:38PM
    • @Jimmy.... I'm just about to buy shares in the big four, so on a personal note, I'm happy with their performance. No everyone has a mortgage, I read somewhere that only 27% of the population have one.
      That would suggest that 70% actually have money in the bank and live off the proceeds?

      Commenter
      Uh NO
      Location
      Brisbane
      Date and time
      May 02, 2012, 3:52PM

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