Faster than a speeding email, the ‘hard’ men of Australian banking fell over themselves yesterday to prove that they were on Team Reserve, that’s the chaps from Martin Place in Sydney who have shamed the likes of Westpac and CBA in less than a month into cutting interest rates.
In fact, the Reserve Bank had a major victory over the Australian banks yesterday with its rate cut announcement yesterday, the likes of which we haven’t seen before.
No sign of regulatory capture here with the regulated running rings around the regulator. The RBA has stamped its authority the banking cartel: we can expect more pressure to come.
It’s a big lesson for the media in their endless questioning of the banks and their representatives about interest rates. Next time they front a banker and ask, where will rates go, they should understand the real answer is, wherever the Reserve Bank wants them to go.
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So if there’s more speculation like there was in August the media should just say to the bankers, “if the Reserve Bank cuts, you will cut, so don’t beat around the bush”.
And all that speculating can be avoided, trees saved and time devoted to digging out the rate rorts being levied in credit cards, business loans and fees and other charges that escape attention.
Sydney’s Daily Telegraph this morning attempted to claim credit for the rate cut (“How we campaigned for lower rates”) by highlighting some of its front pages featuring interest rates: No mention of of the front page that earlier in the year described RBA Governor, Glenn Stevens, as Australia’s most useless man.
After the way the big four fell over themselves to issue me-too statements on a 0.25% rate cut, you’d have to say Glenn Stevens and his gang of daredevil central bankers are the go-to guys of Australian finance and business.
The Telegraph and the likes of Today Tonight, Malcolm Turnbull, Wayne Swan or Choice magazine couldn’t get the banks to drop interest rate,; or in the case of St George, the Commonwealth or Westpac, to admit they would think about it.
On two separate occasions since the last RBA board meeting on August 5, senior bank executives have said publicly that that they saw no reason why the banks couldn’t cut interest rates, if rate were cut by the central bank. Two of the most senior executives in the bank, including deputy governor, Ric Battellino, said that funding costs had been falling and the credit crunch pressures were being eased. They made it clear there was ample room for the banks to cut.
Indeed Assistant Governor Phil Lowe pointed out in a speech last month that:
In the meantime, the extent to which banks are able to increase their borrowing rates is constrained both by competition amongst themselves, and the fact that higher margins make it more likely that lenders funding through the securitisation markets will again find it profitable to make housing loans. A widening of margins also risks raising the ire of the public.
Added to this was the pressures placed on the ANZ by the poor decisions involving Opes Prime and other margin brokers, and in the case of the NAB, the shock $1 billion in losses on write-downs on CDOs. A good example of divide and conquer, using the weak point of NAB and ANZ, their poor standing, as leverage points. They folded, quickly.
The RBA’s comments (and no doubt its off the record chats with the banks) was an example of the power all regulators have to change the behaviour of those they regulate. The more profitable Commonwealth, Westpac and St George (which is now in a Westpac ‘sphere of influence’ pending their proposed merger) wouldn’t commit.
Well, yesterday afternoon, the haste of the big four was almost indecent. St George followed with a twist of its own. The ANZ Bank almost pre-empted the Reserve Bank’s rate cut, so eager was it to get the news out that it was the first cab off the rate cutting ranks.
The RBA posted its decision and statement from Governor, Glenn Stevens at 2.30 pm on its website, there were stories on the wires a fraction after 2.30 pm announcing that the ANZ was first. By 2.35pm the NAB’s cut had been announced, with the seemingly recalcitrant CBA and Westpac splitting them.
The 33% owned CBA affiliate Aussie Home Loans was there or thereabouts with its announcement and there was a steady stream of comments and cuts until well past 3 pm.
However the banks are still running a top up margin of 0.55% because of the impact of the credit crunch, although much of that increase has dissipated for our banks in the past month. Getting rid of that premium and bringing variable mortgage rates more directly into line with the RBA’s cash rate will take longer and be a much tougher ask.
But don’t expect Aussie Loans to be too aggressive, it wouldn’t do to show up someone who has just paid a heap of money for that one third stake, while we should expects the reawakening Westpac subsidiary, Rams, to lead the way with some aggressive cuts either.
But if the RBA thinks interest rates should be lower, it will cut them until the banks get the point. They already understand that, but there will come a time when getting rid of the extra half a percent or more, becomes a major issue.
And just when the cartel thought they’d fallen very nicely into line, along came St George with a larger than expected 0.30% rate cut. But hey, it’s all cool because the would-be partner of Westpac actually lifted its rates by far more than the 0.55% average of the majors, on top of the RBA’s four rate rises from last August. So St George has merely brought its variable rates closer to those of its four larger peers.
Now for the RBA to find some way of injecting competition into banking, again.