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The Reserve Bank of Australia’s

Banks become a political football

John Hewison
Founder and Director
9 Aug 2016

Bank bashing has long been a common tactic among shock jocks and politicians, with certainty of firing-up public emotions. The Reserve Bank of Australia’s (RBA) recent cash rate cut, together with the failure of the big four banks to reduce their mortgage rates by the same amount, is a prime example.

I am certainly not a bank sympathiser, and have in the past had plenty to say about practices of the banks however, I have a hard time dealing with the recent spate of nonsense being pedalled by our politicians and some commentators.

The government’s call to the Big Four banks to front up to parliament with an explanation of their interest rate policy is nothing more than political chest-thumping to appease critics and the wider electorate.

Despite Prime Minister Turnbull’s reference to social accountability of the major banks, and Labor Senator Sam Dastyari’s comments regarding the banks that haven’t passed on the cuts are “behaving like merchants of misery,” it’s vital to remember the banks are still businesses who also hold a responsibility to their shareholders. They’re also critical to ensuring the stability of our financial system through responsible dealing and financial stability in profitable developments.

The notion that the RBA’s cut to the cash rate translates to a similar reduction in the cost of funding for banks is simply incorrect. Banks raise funds by public deposits. Currently they pay approximately between two and two and a half per cent, and also raise funds in variable wholesale market securities. Therefore, the suggestion that they reap the benefit of a 1.5 per cent cash rate is misleading.

What people need to also remember is that credit cards are unsecured debts and using a credit card is like taking out a short term unsecured loan. This type of loan is subject to high interest rates due to the high risk nature of the loan to the lender, in this case the bank. Credit card holders are given up to 28 days free credit, and banks charge no interest on amounts repaid by the due date. Credit cards are not intended to be long term lines of credit; consumers who consistently accumulate high amounts of debt on credit cards are foolish in my opinion.

Let’s not forget the Global Financial Crisis (GFC). Many global financial institutions required government bailouts, bankruptcy or takeover; think UK’s Royal Bank of Scotland, Wachovia Bank, Bear Sterns and the Lehman Brothers in the United States. However, Australia remained mostly shielded.  Our Big Four Banks remained strong and protected depositors and borrowers from the ramifications of the GFC.

The call for a Royal Commission into Australia’s banking system by some politicians is sensationalist and not justified. It is potentially a massive waste of money that could be better spent on governing resources, ensuring compliance to existing regulations.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.