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Call to cut rates
A good & extremely apt observation Debbie.
This was a very obvious outcome the day that we allowed our Government to sell the CBA. It is only 20 or so years ago that the Banks worked on a margin of 2% over the cash rate. They have now got an unopposed 3% & are crying poor mouth. That is not a rise of 1%. It is a rise of 50% in their margin.
There are alternatives to the main banks - look at credit unions for a better deal.
A good tip fwed. However, be careful. Remember that Credit Unions do not have access to the Reserve Bank lender of Last Resort rights & the risk of going belly up is the same as any other business.
Credit Unions that get into trouble are generally merged with larger institutions with no loss to its members. The last Credit Union to actually fail and be wound up was the Shop Distributive and Allied Employees Credit Union back in the '70s......I was working there at the time.
I also understand that the "lender of last resort" right that banks enjoy is not actually a guarantee but a right to call on the Reserve Bank for an emergency loan in certain dire circumstances. I believe that the Reserve Bank can still refuse such an application if the Banks finances make repayment doubtful.
Over the years, the banks have made great mileage out of being "government guaranteed" which is actually a myth that they have worked hard to perpetuate.
Great topic!
The privatisation of the CBA by the Hawke/Keating government was a disaster. The Hawke/Keating government also introduced deregulation and since financial deregulation, banks cut services (especially destructive in country towns), raised fees and charges, discriminated against the vulnerable with low incomes and low savings, refused to pas on interest rate reductions and generally acted disgracefully.
Regardless of what is said by banks, since the CBA was privatised and made commercial as well -which destroyed any sense of community obligation- the banks have wielded a collective monopoly that has often worked against the interests of the public and sometimes Australia too, in my opinion.
Given their wretched behaviour and manners, the Australian government should not gice any support to commercial banks and that includes the implication that banks are guaranteed by government.
What government doesn't talk about is that the total sale price for the CBA would only equate to around five years profit ten years ago. In current numbers it was sold for a peppercorn.
Australia needs a people's bank.
7th Feb 2012
11:23am
Today the board of the Reserve Bank of Australia (RBA) will meet for the first time this year. One of the decisions it is tasked with is to set the official cash rate. This should determine the rate which banks charge customers for lending money on credit cards, mortgages and personal loans.
With the economy perceived to be slowing, low retail sales and prices dropping in supermarkets, it is predicted that the board will again reduce rates by 25 basis points. This would normally filter down to consumers through a 0.25 per cent drop in bank interest rates, but borrowers shouldn’t hold their breath.
The indication from the big four banks is that they will make a business judgement on whether or not to pass on any rate cut in full, or at all. Falling profits, the increased cost of borrowing for banks and lending margins have all been quoted as deciding factors. Indeed, the Commonwealth Bank and ANZ now review their rates independently of any decision from the Reserve Bank.
With a combined profit of $28.6 billion last year, surely the big four banks can’t claim to be struggling. Yet that is the cry we are hearing.
Last year the big four banks also slashed 3300 jobs and in the first month of this year, ANZ and Westpac have announced their plans to shed 730 jobs. Yet the CEO of these organisations consistently receive grotesque amounts of money in bonuses, not to mention salary.
Yet again borrowers find themselves waiting with baited breath to find out if today’s anticipated rate cut will make it to their pockets. During previous rounds of rate cuts the big four practically fell over themselves to pass the savings on to customers, wishing to be seen as the ‘good guys’, helping out when times were tough. The Government also introduced legislation to help consumers switch banks if they felt they were not getting a fair deal. A further incentive for banks to do the right thing by consumers.
Now though, there has been a dramatic, almost bolshy, move to defy the Government and consumer pressure to pass on any cut. If all four big banks refuse to pass on the cut and the smaller banks legitimately struggle to do so, what are consumers going to do? Over time the banks have proven that each is as bad as the other, what they give with one hand, they ultimately take with the other.
While lending costs and profit margins are quoted as being the reason behind not passing on cuts, the banks were noticeably reticent to pass on the benefits when times were good. Anyone with money in savings accounts or term deposits will note with a wry smile that the interest rate paid to them hasn’t been quick to move in an upward trajectory. But when interest rates are reduced, the banks are only too happy to cut the income for savers.
YOURLifeChoices notes from recent survey results that the majority of our subscribers live on a fixed income. Many earn interest in savings held in financial institutions and this is what they live on. They are in effect, receiving a reduction in salary every time the banks cut the rate of interest paid on savings.
So, it seems the banks can do what they want. They can charge what they want, pay their CEOs what they want and get rid of staff as and when they choose. Consumers simply have to go with the flow.