Banking on Wayne’s Courage

This week, unfortunately, delivered no surprises after the Reserve Bank cut interest rates again. As we have seen too many times over recent years, small lenders looked after their customers while the big banks did bugger all for Australians everywhere (except their shareholders). Then the usual crap came out of Wayne Swan’s mouth and nothing happened.

A quick lesson in basic economics. When times get tough, the Reserve Bank will lower interest rates to encourage mortgage holders to spend the extra money they have. This is so Harvey Norman gets more money, employs more staff and those staff pay more tax which goes into hospitals and schools. The economy is stimulated and that means Australia has a lower chance of going into recession. The most important part in the chain is where mortgage holders have more money to spend by interest rates being lower.

Enter the big banks. The big 4 have about 80% of the mortgage marked shared between them. When ANZ, Westpac, Commonwealth and National Australia Banks say their costs have increased so much that they can’t pass on an interest rate cut in part, in full or until sometime in the future, it means that potentially the whole economy is affected. Their profits are also affected. The profits of the big 4 are in excess of 20 billion dollars a year. That’s $20,000,000,000 at or near record levels. The poor banks.

If you can’t trust greedy organisations to do what is right for customers and the country as a whole (particularly if those organisations are in the business of delivering an essential service) then it’s up to the pollies to do something about it.

Last year Wayne Swan “strongly urged” the banks to pass on interest rate cuts in full. They ignored him. This week he told mortgage holders they should take their business to smaller lenders, and he conveniently left out the bit about how big a pain in the arse changing banks is, not to mention the fees. What Wayne seems to be forgetting is that he can actually introduce laws to coerce banks to pass on the Reserve Bank rate changes. These laws could simply state that any financial institution that failed to do so would lose their government guarantee on their bank deposits. So when people wanted to put their bucks in a term deposit they would avoid the banks who are perceived as being risky – the ones not backed by the government. No bank can afford to be seen as risky and I reckon all of them would be kept in line.

Now, there are a few people who would suggest that instead of getting angry at banks you should actually invest in them by becoming a shareholder. That way when they make their record profits, you get your piece and are happy. Speaking strictly financially, it makes perfect sense, but this is something I personally can’t bring myself to do. Profiting from the greed of big business, greed that affects so many people in a negative way just doesn’t sit well with me.

So it’s up to you Swanny. Millions of Aussies are relying on you to show some real guts and stick it to those poor old banks.