Thursday, November 04, 2010

Aussie banks too big to flail

The US government has a policy that its big banks are too big to fail. And how has that worked out?

The Australian banks have a clear, legislated policy with the same result. The Australian bank policy is referred to as the "Four Pillar" policy. The policy has, among its many intended and unintended consequences, given the Big Four unassailable power to dictate the course of micro and macro economic direction.

The effect of the policy is to assure that the oligopoly of the National Australian Bank (NAB), Westpac (WBC), the Commonwealth Bank (CBA) and the Australia-New Zealand Bank (ANZ) brook no interference from foreign competition, or political inference either for that matter, and are large enough at home to prevent any upstarts from starting to grow up. It suggests, underneath the political grandstanding, the true strangle hold that a few families have long held over the economic destiny of the country, for good and for bad.

And it should be mentioned that this policy is the long-lasting child of "both sides" of the political spectrum, the liberal Labor and the conservative Liberal.

Governments had a hand in banks' gouging
Many years ago those of us of the ''old left'' said it was not wise to deregulate the banking industry (''The bank that stopped a nation'', November 3).

Then Paul Keating and John Howard sold the Commonwealth Bank. We of the ''old left'' said this, too, was not wise.

Competition from a government-owned bank acted as a deterrent to private banks ripping off their clients by outrageous interest rises and ''fees'', unscrupulous practices to con people into taking on credit responsibilities they could not afford and mean-spirited foreclosures.

We were told we were silly for thinking that. Banks were now benevolent and kindly institutions. They would cherish their clients.

And how is that working out?

Reserve Bank of Australia lifts official interest rate, Commonwealth Bank moves higher than RBA
THE Commonwealth Bank has lifted its standard variable mortgage rate by 0.45 percentage points.

It is almost double the increase in the Reserve Bank's official cash rate.

Industry analysts say rival banks are likely to follow the CBA's lead.
Australia's Banks Find Winning Means Losing as Swan Condemns `Cash Grab'
Commonwealth Bank, Westpac Banking Corp., National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. -- dubbed the “four pillars” after a law preventing takeovers among them -- accounted for 87 percent of the home lending market in September, up from 76 percent three years ago.

Westpac, Australia’s second-largest bank, yesterday said profit in the six months to Sept. 30 almost tripled from a year earlier, while ANZ Bank said last week that earnings in the period surged 69 percent and National Australia, the biggest lender to companies, posted a cash profit gain of 32 percent. Combined profit at the lenders reached a record.

The lenders have benefited from an economy that skirted the worst worldwide recession since World War II and government guarantees on deposits and debt issues introduced by Treasurer Swan at the height of global financial crisis.
Banks, rates and regulations: who's in charge here?
It's hard to imagine an issue that better shows up the piss and wind of our politics than banking and interest rates.

The Great Truth That Dare Not Speak It's Name here is the mildly unsettling thought the governments in unprepossessing backwaters like Australia can do increasingly little to bring influence to bear on the tides that wash through their economies. Yesterday was an extraordinary example. The RBA pulls at perhaps its most direct monetary policy lever and one of the key organisations it was seeking to influence jumps above and beyond the Reserve's mark due to fundamentally unrelated international market factors.

The political necessity is of course to maintain the impression of Being In Charge. To do otherwise would invite some awkward questions. And so we will bluster on for days and weeks now with talk of regulation and improved competition and inquiries. At the end of the day you have to think that the gorillas in the room will do pretty much as they please.

And what are we going to do? Bluster presumably, and then pay up.

The most telling response to the CBA rise yesterday? That bank's shares bounced on the back of it. That's the only commentary that matters.

Hypocrisy rules bank bashing
WAYNE Swan personally granted more market power to Ralph Norris and Gail Kelly.

Now, less than two years later, he is expressing concern about bank competition.

The whole argument is, frankly, deeply concerning when considering the sheer hypocrisy on display.

When CBA wanted approval to increase its market share in Western Australia to 46 per cent via the BankWest deal two years ago, Swan said yes and so did the ACCC.

When Gail Kelly wanted the green light to increase her share of the national market and NSW market to 20 and 25 per cent, respectively, the same competition defenders gave her the big tick the very same year.

Swan is clearly playing for time on the Norris attack on rates and should step carefully with the aim of only acting in defence of competition.

Banks can do more to allow customers to swap accounts but despite the rhetoric are sitting on their hands.
Now re-read that carefully. It contains the very implicit illusion that the guaranteed oligopoly of the Big Four is some kind of competition, when it is more like the arrangement of deck chairs on the Titanic. Swap accounts amongst them? A fool's game.

Switching banks: what it could cost
Yesterday the Reserve Bank lifted interest rates 0.25 percentage points, surprising consumers who had been expecting rates to be kept on hold. The Commonwealth Bank moved immediately to raise their rate by 0.45 points.

Citywide Lending director Rodny Ghalie said the big banks effectively took turns taking the public perception hit, alternating who would up their rates first.

Still too hard to change banks: survey
Most people still find it too hard to change banks despite federal government attempts to improve competition, consumer group Choice says.

A Newspoll survey, conducted for Choice, found that 80 per cent of respondents had never considered switching banks, even though legislation had theoretically made that process easier.

"The main reason for that is it's just too much hassle," Choice spokesman Richard Lloyd told ABC Radio on Thursday.

"Probably even worse, people just don't think it's worth their while."

Switching banks too much effort for most, poll finds
NEARLY 80 per cent of Australians have not thought about switching banks because of the effort involved and fear it would not make any difference anyway, a poll shows.

Choice's Richard Lloyd said customers lacked confidence in the banks' ability and willingness to compete.
Guambat's experiences over many years with various of the Big Four lead him to the conclusion that, at the end of the day, it's all much of a muchness. Once the banks gave up relationship banking and folded the CBA into the Four Pillars club, there was no longer anything between them.

And why should the banks compete? Really compete.

Why, when the Four Pillars policy guarantees complacency amongst them and freedom of fear from others?

The issue in Australia is not over the lack of control of their bankers over world economics and financing costs, it's about how the domestic banks can stick it to Australian consumers, passing through every last cent of that cost without regard to foreign competing banks who may be willing to share some of that cost for the business.

And, you don't think the Four Pillar policy is a blank check underwriting the Big Four? Go back and read the article above that said, "the most telling response to the CBA rise yesterday? That bank's shares bounced on the back of it. That's the only commentary that matters."

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