August 13 2016
    Sydney Morning Herald

Australia's big four banks feeling pressure from parliament


If bankers were hoping Malcolm Turnbull's election victory would ease the political heat they are facing, it's now clear they were very much mistaken.    

The war of words between bank bosses and their critics in federal parliament shows no signs of easing.

Banks should pass on rate cut: Turnbull

The big banks should pass on interest rate cuts or 'they owe the Australian people a full explanation,' Prime Minister Malcolm Turnbull says. Courtesy ABC News 24

Indeed the hostility to banks was cranked up a notch this week, as lenders reported multi-billion dollar profits, hot on the heels of them withholding half of last week's official interest rate cut from borrowers.

Labor opposition leader Bill Shorten blasted the "greed" of the sector for its interest rate decisions, which he said was the result of executives looking out for themselves in a "fat cat" bonus system.
CBA chief executive Ian Narev won't back down from "unpopular"

"There is a culture in banking which puts the profits of banks, big profits, billions of dollars of profits ahead of the national interest and interests of mum and dad mortgagees, small businesses and people with large credit card interest rate debts," he said.

Shorten did not rule out demanding a new tax on banks, as put forward by the Greens.   


CBA's boss Ian Narev fired back as the bank delivered $9.45 billion in profits, claiming "bank-bashing" was threatening to unsettle global investors that help to fund the financial system.

"The only thing the public would like less than a profitable bank is an unprofitable bank," Narev said.


Narev went on national television, newspapers, radio, online media and Twitter to put his case for why it had made the decision that so enraged Canberra.

The stoush has put the spotlight on the inner workings of banks, and what a world of ultra-low returns means for two types of customers with opposing interests: depositors and borrowers.

This will surely be a taste of things to come, after Turnbull called bank bosses to regularly appear before a parliamentary inquiry to explain their pricing decisions.

But despite all the political bluster, there remains a question mark over how much the banks' mortgage rate moves were really about balancing interests of various customers, as opposed to protecting their bottom lines.

    The finely-balanced parliament ensures [a royal commission] will remain on the agenda.   

Meanwhile, the ferocious debate about interest rates and profits has only fuelled the separate calls for a royal commission into the industry after a string of scandals.
Are banks really looking after depositors, or shareholders?

Chief executives of the big four have now all fronted the media to justify last week's move to withhold about half of the Reserve Bank's 0.25 percentage point cut in official interest rates.

Their line is consistent: banks need to balance the interests of mortgage customers with those of people with deposits and their shareholders.

Banks are of course free to set their own commercial mortgage rates, and experts agree that as interest rates fall to new lows, bank profits are pressured. That is because banks must ensure they are offering depositors enough to prevent them shifting their money into other assets with higher returns, such as shares.

As a result of last week's changes, rates on term deposits have been increased by up to 0.85 percentage points, mainly for terms of a year or more.

But how many deposit customers will this actually benefit? And how does it compare with the benefit to banks of withholding half the RBA's cut?

The rate rises are for term deposits, which require customers to lock their money up, not "at call" savings accounts that make up a bigger share of banks' total deposit holdings.

Moreover, the most popular types of term deposits are for three or four months, whereas the banks have mainly increased rates for one to three-year terms.  The Reserve Bank noted that term deposits of the maturity where banks have increased interest rates account for less than 2 per cent of total bank funding.

   

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Yeah, it is only a recent phenomenon.

Its time wrote on Aug 13^th, 2016 at 3:20pm:



Nor at all. It was merely the ridiculous holier than thou claim about Labor and Greens. Labor had ample time to reign in the banks. The Greens are merely a pimple on the arse of Labor.

Bam wrote on Aug 13^th, 2016 at 5:07pm:



So you freely admit Labor were in for six years and did nothing. Thank you, it proves my point ... politicians are hopeless.

lee wrote on Aug 13^th, 2016 at 5:52pm:

That's a straw man.

The problems with the banking industry have only become apparent when the Coalition were in office. Why are you refusing to admit that the Coalition have done nothing useful to fix this? Labor have a very clear policy of making the banks accountable with a Royal Commission. Why are you not acknowledging this?

You really should take off your blue glasses and take a look at the real world sometime.

Sir Grappler Truth Teller OAM wrote on Aug 13^th, 2016 at 5:54pm:

Or we could abolish limited liability. Anyone who receives profit from corporations should also act as guarantors for that corporation's conduct and be liable for the losses. No more of this nonsense of privatised profits, socialised losses. Losses should also be privatised.

John Smith wrote on Aug 13^th, 2016 at 6:13pm:



**falls about laughing**  (fond memories of the mining super-tax that was supposed to destroy the country - mining didn't need any help to destroy itself in the current global market... just another commodity... all Banana Republics founder when the price of bananas is way down due to a glut or huge stockpiling ...)

Sir Grappler Truth Teller OAM wrote on Aug 13^th, 2016 at 6:34pm:



Isn't that basically how Lloyds of London works/worked?