A bout of bank bashing from Canberra has, perhaps inadvertently, thrown the relativity of who raises rates, and when, into sharp contrast.
I had promised that I would try and explain the linkage between the credit market and equity markets in this week’s blog, but I have been distracted by the vicious attack on Australian banks (which group, by way of disclosure, includes my employer) by our Prime Minister and Treasurer.
By way of background; the Reserve Bank has raised interest rates 11 times in a row – in total 2.75% (275 points, in the jargon). Those rate increases are noble and good and righteous.
Recently, the Commonwealth has increased rates by an additional 0.05% and the National by an additional 0.04% (that’s five and four points respectively). By contrast, those rate increases are evil and pernicious and apparently will plunge millions of Australians into “mortgage stress”.
Messrs Rudd and Swan are outraged and have launched a swingeing attack on our banks. The measures include:
1. Making it easier for consumers to change banks. Those who anticipated that this measure might streamline the process of registering a mortgage, or, more significantly, reduce the stamp duty charged by some state governments, are wrong.
Instead, our Government’s bold initiative will force banks to provide customers with a listing of all periodic debits and credits, to help them re-establish the same arrangements at their new bank. (Not a bad thing, but hardly earth-shattering in your correspondent’s opinion because it will do nothing more than repeat the information that would otherwise appear on the customer’s bank statement anyway.)
2. Launching a 1300 telephone inquiry service and website to advise consumers about the costs and benefits of switching banks and collect complaints about banks.
The first aspect fascinates your correspondent. If this new service provides meaningful advice then it must comply with the Financial Services Reform Act, in which case it will be a good thing because it will educate the Government about the unwieldy and self-defeating framework imposed by the FRSA.
However, in the short term it may be rather expensive.
Of course it may be that the service will not provide specific advice, in which case the government may be able to avoid the expense of actually employing anyone to actually answer the phones, by using a recorded message which says something similar to: “Government red-tape prevents us from providing you with specific advice but changing banks may be good, or bad. If you do change banks you will see details of your periodic payments on your bank statements.”
The second aspect relates to receiving complaints about banks. Given that the Banking Ombudsman already has responsibility to investigate complaints, and power to resolve them, the new service seems to be nothing more than an expensive mail re-direction device.
3. Having ASIC review mortgage entry and exit fees.
(At first I wondered why the ACCC hadn’t been tasked with this investigation, but on reflection it’s fairly clear. Not even Prime Minister Rudd would be able to keep a straight face if required to explain that an organisation which apparently believes that it is just an amazing series of coincidences that petrol prices always spike before a long weekend had been given the job of putting the banks through the wringer.)
All of which leaves your correspondent hoping that the new Government is secretly rather pleased that someone else is raising interest rates and is engaged in theatre to impress the electorate. The alternative – that it is intended as a serious response to a serious problem – is really rather depressing.
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