This post may surprise a few people, and especially those who know me well; as a conservative and as an economic liberal, it’s not very often I advocate taxes, regulation, sanctions or commercial compliance regimes, but Australia’s big four banks have finally gone too far.
Yes, I’m talking about this week’s decision by the Reserve Bank to cut interest rates and the action — or lack thereof — to pass that cut on by “the big four.”
And yes, it is true all four banks belatedly passed the cut on today (two days after the official action) but if anyone thinks these institutions merit commendation for their actions, they need their heads examined.
Word was put about this morning by sources close to the major banks that they were waiting until Sunday — until various conferences in Europe on that continent’s financial meltdown had taken place — before they announced any movement on their positions on interest rates.
The good word was that they needed to evaluate their position in relation to funding costs.
This mythical position was detonated this afternoon by firstly the ANZ, followed reasonably smartly by the other three, passing on the Reserve’s rate cut in full — and finally destroying any lingering remnant of credibility among the big four banks in this country in relation to interest rate changes.
Now that the ruse about concern for Europe has been exposed, it’s time for a hard look at our banks, and a well-aimed kick in the balls at them is indicated.
Let’s face it: the minute interest rates rise, all four — Westpac, ANZ, the Commonwealth Bank and NAB — pass the hikes on in full, and usually it’s immediate.
Indeed, in recent years — under the guise of the so-called Global Financial Crisis — some of them have passed on rate rises well in excess of official movements in the cash rate.
But they never — NEVER — rush to announce a cut in full.
A delay of a day or two can be worth TENS OF MILLIONS OF DOLLARS IN PROFIT; don’t be fooled into thinking otherwise.
And on this occasion all four of them sat on their hands for two days, which is indicative not just of a contemplated refusal to cut anything, but suggestive of behaviour that might be interpreted as collusive — which is also illegal.
If we take a trip down memory lane — back to the so-called Global Financial Crisis — the big four banks in Australia were going gangbusters.
Indeed, most — if not all — of them, at varying times during the “crisis,” posted record profits that exceeded only their previous year’s result, and which have in turn been exceeded since only by their results in ensuing years.
In simple language, these four institutions have raked in record profits at a time of alleged doom in the banking sector.
They have done it by increasing interest rates in real terms; all of them — all of them — have at various times imposed interest rate increases in excess of any movement in official rates by the RBA.
“Funding costs” has been the universally stated pretext.
Yet bank profits — at least for the Big Four — are at record levels and continuing to grow.
Clearly, “funding costs” is an excuse for nothing more than increasing profits.
And if you look a little more closely, interest rate considerations are more than just mortgage rates.
Most credit card products (I’m not talking about so-called no-frills cards with no interest free days, no rewards, no bonuses and no features other than a credit facility) are subject to nearly 20% interest on purchases and attract annual fees of anywhere between $90 and $250.
The imposition of annual fees some fifteen years ago was meant to be a levy in exchange for lower interest rates on credit cards; the banks now charge the same old usurious rates of interest and pocket their annual fee.
And to overdraw an account, or to be late with any sort of payment, or to actually ask for service from any of these banks, is treated with the utmost seriousness: the serious application of their rate cards for fees and charges.
These aren’t cheap, as most of you know.
And I haven’t even mentioned their commercial and business divisions yet…
There are two points I would make.
One, the latest interest rate cut by the RBA has been made for good reasons (and it has nothing to do with economic ignoramus and Treasurer, Wayne Swan).
There is a meltdown approaching; Europe is likely to implode economically under the weight of its own mismanagement and misguided principles; the USA teeters on a return to recession; Japan hasn’t fired for over a decade; and China is pursuing a stated policy of deliberate economic slowdown.
There’s a hefty recession looming, and the actions of the RBA are specifically designed to attempt to stimulate economic activity in Australia.
The banks however see it as an opportunity for profit: they have belatedly implemented this rate reduction but they thought about it; and their form in the past few years in this area is uninspiring at best.
And two, I understand that banks are publicly listed entities with shareholders seeking growing returns.
The big four banks, ten years ago, might have posted annual profits of $1 billion each; these days it is increasingly common to hear of half-yearly (and even quarterly) profit results of close to $2 billion.
This leads me to my point.
In order for there to be fiscal conservatism, economic liberalism and freedom generally, there is an obligation on the major participants to behave as good corporate citizens.
I don’t like regulation and red tape, and I certainly don’t like new taxes.
But if companies like Australia’s banks won’t behave, and won’t be decent corporate citizens, then prudential regulatory action must be considered.
I think — reluctantly — that the banking sector should be subjected to a windfall tax of 50% on any profit exceeding $2 billion per annum, per organisation.
Regulations should also be implemented to prohibit these banks from splintering their organisations into “groups” to evade such measures (for example, a bank breaking up into ten entities, all of which fall below the windfall tax threshold, but which cumulatively are liable for hundreds of millions of dollars in taxation revenue).
Maybe they’d start to deliver a bit of service to the mums and dads who’d depend on them.
And whether or not they did, the money (a 50% windfall tax would rake in about $5 billion per year in 2011 dollars) would fund tax cuts, pension increases, or any other properly constructive government expenditure measure.
And taxing the (greedy, overblown, mercenary) banks would be a far better activity than trying to kill the “golden goose” that is Australia’s mining sector.
But let’s face it: the Gillard government looks at the golden goose and it sees money; it looks at the banks, and sees chairmen and CEOs it feels it needs to brown-nose.
Here’s a hard fact: mining executives (whilst pocketing hefty profits) actually run an industry that holds Australia afloat; bankers contribute nothing to the economy, but they take profits that make most of those realised in the mining sector pale by comparison.
In closing, I want to mention the rather odd announcement by ANZ today that it will review interest rate settings every month from now on, independently of the Reserve Bank.
I listened to the media announcement by ANZ this afternoon on this subject; perhaps unsurprisingly, “funding costs” was a phrase that featured heavily.
Well, to be frank, it stinks. ANZ has announced it is going to behave like a mini-RBA; reviewing interest rate settings and making its own changes accordingly, but purely in its own interests of course, and bugger its account holders, official policy, or whatever other more genuine marker might be considered.
If I were an ANZ customer I’d be running for the hills right about now.
These are my thoughts on the major banks in Australia.
What do you think?