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Hockey’s bank bashing

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by Peter Switzer

The nation’s number one bank basher — Joe Hockey — says he’s not a bank basher but he wants a banking enquiry to raise the level of competition in the banking sector. And he’s absolutely right, as we do need a good hard look at banking in this country.

The public outcry over our banks, which, let me remind everyone, were vital to Australia dodging the GFC’s recession, has not been helped by the Reserve Bank’s ridiculous interest rate rises. These have been way too aggressive and the Big Bank is an accessory before the fact.

Rate hikes

The CBA’s move on Cup Day was bigger than expected and the reaction from politicians as well as the media has made the other three big banks unwilling to reveal their plans. Of course they will have to come out of their shells before December as they will want to improve their revenue.

Clearly if they don’t raise by at least the 0.25 per cent, which the RBA hiked by, then their share prices will be negatively affected.

Obviously Ralph Norris hasn’t been media-savvy talking about foreclosures and his PR team will be having headaches for a few weeks but all of this says we need to have an inquiry into the way we bank around here.

The good and bad of the banking system

An intriguing story in the SMH today showed only Australia and Germany out of the 12 types of countries we would compare ourselves to have variable mortgage contracts which allows the banks to vary the price over the life of the contract.

Professor Kevin Davies, research director at the Australian Centre for Financial Studies, says he “knows no other contract like it. Foreigners find it amazing.”

Some countries have variable rate loans but there’s a limit to how high they can go over an indicator or benchmark rate of interest.

I have asked banking experts why we don’t have loans such as 30-year fixed rate mortgages, which they have in America, and no one can tell me why.

Of course, our variable rate loans makes monetary policy of the RBA more effective and could explain why we have economically done so well over the past 20 years.

But these are the sorts of issues that a banking inquiry could look at — we need to know what’s good and bad about our banking system especially when we taxpayers are the ultimate backstops if something goes wrong.

One thing we don’t need is non-recourse loans, which allow Yanks to walk away from their loans.

These were at the core of the sub-prime loan mess, which resulted in the GFC.

Better banking system?

By the way, Joe Hockey is not really a bank-basher, he’s a Labor-basher and the banks just happened to be bystanders — not innocent ones — but nonetheless bystanders. However, the whole drama could easily mean we end up with a better banking system for customers and in the long run even better for shareholders. This current blow-up isn’t working out for shareholders as share prices have been showing.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, November 09, 2010