The perception that our Banks are monoliths run to the benefit of the Board of Directors needs to be dispelled if we are to have any rational debate on the delivery of affordable interest rates. Banks have shareholders participating both directly and indirectly ( through Super) They have depositors , they have borrowers and a very large workforce all of whom have a differing views as to whom should receive the greater benefit from the Banks operations.Having commenced borrowing from Banks and Finance companies since I was 18 yrs old and I believe made much more money for them than myself I am still grateful that they were around because without them I would never have made any money for myself.
I well remember the days of many Banks including at least seven Govt. Banks plus over time a number of specialist Govt. Banks designed to respond to some politicians idea of need Over time they closed, went broke or were sold for a variety of reasons.One of which when Govts. like The Hawke Govt. who had once referred to such privatisations as an obscenity simply ran out of money.I do not recollect any of them being any more competitive on interest rates other than where a direct Govt. subsidy was provided at taxpayer expense.When borrowers experienced difficulty in meeting their commitments I found them the least flexible.I well remember such remarks as " Under Section --- of my Act I have no choice but to evict your constituent "
In my early forays into the realms of borrowing when Govt set interest rates the advice I received on many occasions was was "sorry Mr Tuckey I have Lent my monthly quota but I can assist by recommending you to our Finance Subsidiary " ( whose interest rates applied to the total sum borrowed for the term of the loan notwithstanding monthly repayments.)
While Politicians make threats they also overlook the fact that our Banks still have the choice of lending or not and when they are forced to borrow overseas where the cost of that money includes extraneous charges such as currency hedging the Board and Share holders are entitled to query what particular market they might choose to service .Internationally Home Mortgages are no longer very popular and the generous lending ratios available in Australia are not always available.
It is also worth clearing the air on the role of the Reserve Bank in influencing interest rates .The rate announced by the Reserve is its cash rate for money advanced to or lodged with the Reserve overnight which process is utilised to allow the trading Banks to meet their statutory requirements From a business perspective it has little influence on the true cost of funds particularly when the Australian Govt is competing aggressively for every cent of domestic savings and paying slightly above the Reserve Banks Quote If I read the Media correctly whats more that Govt. paper is trading at 6% .So while you have such an accommodating Govt. why not close all your agencies and just keep say 100 staff just trading Treasuries?
I would like to return to the suggestions for a New Bank ( Govt. of course) At present a couple of operating examples of Govt. enterprise come to mind ie Medibank Private and the WA Landcorp both introduced years ago to create competition in the market place. I have yet to see Medibank exclude itself from the annual process of applications for fee increases and Landcorp is one of the WA Gov ts. largest profit earners.An example provided to myself and some other MPs recently was the case of a subdivision where the developed cost was $80,000 per lot but Landcorps selling price was $250,000. With such friends who needs enemies.
In WA the competitive home construction industry will erect a four bedroom two bathroom brick residence on your block for a little over $150,000 Farm land around Perth would sell in that market for say $2,000 per hec So how come that lot prices exceed the cost of the building and just how much is attributed to Govt. agencies? In NSW some estimates go over $150,000. The annual cost of interest on that amount at Reserve Bank rates is approx $7,000 plus repayments.The Comm bank. .025% increase over the Reserve quote on $400,000 is $10,000.So who is the villain and where should the attack commence.
Clearly all areas should be investigated but not only the soft political targets.
As far as competition in the finance sector is concerned a suitable market probably under the supervision of the ASX is the solution where borrowers and lenders could trade ie A borrower puts their loan requirements out for offer or a lender offers a loan product If such loan products were trade able in much the same fashion as other bond issues. A true market might develop and a new industry of advisers arise .Otherwise I think politicians should reflect on history and attend to the costs that their own actions impose on home owners and small business that greatly exceed the cost of Bank interest.
Wilson Tuckey
