How much bank profits can we afford?

[nioka]

No they didn't. The CBA maintained the warehousing facilities to securitised lenders during the GFC - the MBS/CDO market (predominately offshore) collapsed so that the warehoused debt couldn't be shifted to market.

Tell that to some of mortgage brokers.eg. Do you see adds for Aussie home loans any more?

 

[Calliope]

That's a laugh coming from the head cheerleader of the Rudd/Gillard Bashing Club.

Thanks Macq. I always appreciate your feedback.

 

[Mofra]

Tell that to some of mortgage brokers.eg. Do you see adds for Aussie home loans any more?

You mean Macquarie, that provided the mortgages for Aussie (Macquarie white labelled more than they sold under their own brand)? They were the specific example I was talking about, as someone who was involved. The warehousing didn't stop until the funds couldn't be shifted, absolutely not the fault of CBA.

I guess when you watch too much ACA/Today Tonight the big four banks are all "evil" and out to get "the battlers", aren't they?

 

[moXJO]

There are industries with far more entrecnched oligopolies and less competition than banking.

Take out WES/WOW and MTS (which is still less than 20% of the market) and that leaves almost no one left in the grocery space.

TLS/Optus and Voda rule the telco market.

Media? Two major players (although the internet has opened up small players in the news space).
TV? Similar to the banking industry.

Bank bashing is just lazy politics; do we really want to weaken our banking system in preperation for a GFC mk2?

We don't give government guarantees on all those other things. The government doesn't protect the others as much from competition either. I'm not saying weaken them by opening the market up to additional banks, but I sure as hell don't mind a bit more regulation for my benefit.

 

[moXJO]

Fair comment, I'm sure. I've never been in the position of wanting to borrow for anything other than real estate mortgages.

Thats what I was borrowing for. My employees can walk in and get a loan easier than I can. Not to fussed about it though

 

[Macquack]

I guess when you watch too much ACA/Today Tonight the big four banks are all "evil" and out to get "the battlers", aren't they?

Yes they are.

"Commonwealth Bank lifts interest rates by 45 basis points after RBA's 25 point lift"

http://www.theaustralian.com.au/bus...as-25-point-lift/story-e6frg90f-1225946781624

This would not happen if the Commonwealth Bank was still the peoples bank.

Thieving scumbags.

 

[IFocus]

Amazingly I agree with Hokey on competition if we lost one of the big 4 banks it would kill the Oz economy hence 4 banks to big to fail this is a very extreme risk to the nation.

 

[medicowallet]

Yes they are.

"Commonwealth Bank lifts interest rates by 45 basis points after RBA's 25 point lift"

http://www.theaustralian.com.au/bus...as-25-point-lift/story-e6frg90f-1225946781624

This would not happen if the Commonwealth Bank was still the peoples bank.

Thieving scumbags.

http://www.heraldsun.com.au/busines...-bank-not-so-big/story-e6frfig6-1225944411811

So the bank makes less than 1%, yet real estate investors call them greedy, and demand returns of 8%

So if you call the banks thieving scumbags

I'll call the average joe "naive hypocrites"

Grow up Australia, and take some responsibility for the beast WE created.

 

[SIGI]

A cartel is nearly always bad for consumers, in this case it certainly is.

If you want a competitive capitalist environment, you must have competition, the more competition, the better for the consumer (regulation of the market is another story).

It been said before but it's worth repeating - the risk reward for the banks is not real - it's skewed by the too big to fail, privatize the losses environment we currently tolerate.

If you lean to the left, these profits embody everything which is wrong with capitalism (a redistribution of wealth from everyone in the country to investors, a very small percentage of the country), if you lean to the right they are proof of a completely inefficient market. So aside from those holding bank shares, who gains from these profits.

It's not just the banks (as Mofra noted) - Australia loves a monopoly/duopoly/cartel.

 

[medicowallet]

If you want a competitive capitalist environment, you must have competition, the more competition, the better for the consumer (regulation of the market is another story).

You make it sound as if average Joe is forced to bank with the Big 4.

I'll do everyone a favour

http://www.apra.gov.au/adi/adilist.cfm

I had a quick look, I'll admit, and my memory is fading as I am getting older, but I am fairly certain there are more than four listed.

 

[Julia]

It been said before but it's worth repeating - the risk reward for the banks is not real - it's skewed by the too big to fail, privatize the losses environment we currently tolerate.

Can you explain exactly what you mean by "privatize the losses environment" in the Australian context?

You make it sound as if average Joe is forced to bank with the Big 4.

I'll do everyone a favour

http://www.apra.gov.au/adi/adilist.cfm

I had a quick look, I'll admit, and my memory is fading as I am getting older, but I am fairly certain there are more than four listed.

Indeed there are, and many of the smaller institutions offer considerably better deals if you ask them. I've never found a situation where they have not been prepared to outbid the big four on deposit rates.

 

[SIGI]

You are quite right there are more than 4 banks in Oz - but the point is whether the dominance of the big 4 is beneficial to consumers, their large balance sheets and advertising budgets does not make for a market of perfect information for the average joe. Bank customers are notoriously sticky, particularly the average joe, they don't move their mortgages/savings when a better deal is on offer at another institution. ASF members probably do, but most people don't. The bank profits are not bad per se, only that their size indicates an inefficient market. If it were not, you would see the spoils from the financial gravy train more evenly distributed amongst the multitude of other financial institutions.

I'm interested to hear why you think that 1% is not greedy....it's just a number, different industries have different ROC? Or why increasing rates to borrowers above the RBA is not greedy?

If the market is such that banks are able to be "greedy", then this is an inefficient market. Surely, the question as a consumer is, could we get a better deal with a different system.

WRT privatizing losses (publicly funded), this did not happen in Oz during the GFC, but I think, perhaps incorrectly, it would have (or will do), should one of the large banks falter. Why should bank investors be afforded this free insurance policy, when investors in other industries are not? If you are afforded govie risk you should earn govie returns.

 

[doctorj]

You are quite right there are more than 4 banks in Oz - but the point is whether the dominance of the big 4 is beneficial to consumers, their large balance sheets and advertising budgets does not make for a market of perfect information for the average joe.

Would you prefer a small number of large banks controlling a significant share of the market, or a large number of small banks each controlling very little? The current market structure affords choice to those that are engaged with their finances, whilst offering 4 safe "default choices" for those less engaged or less able. If the system consisted of only banks with smaller balance sheets, this would result in the system’s bank having a weaker credit rating, which would in turn result in:
1) An implied greater risk for depositors
2) Higher funding costs for banks
3) Which means loans would be less available and more costly for the consumer.

Banks are also required to retain certain amounts of capital to be compliant with Basel 2/3 and regulatory minimums. The capital requirements for smaller banks are proportionally greater than larger banks, which means smaller banks can often be sub-scale or need to charge relatively more than a larger bank for the same risk. Similarly, compliance overheads are a significant cost for Banks and are largely fixed irrespective of size.

Bank customers are notoriously sticky, particularly the average joe, they don't move their mortgages/savings when a better deal is on offer at another institution. ASF members probably do, but most people don't.

This is a matter of financial education, not for the banking system.

The bank profits are not bad per se, only that their size indicates an inefficient market. If it were not, you would see the spoils from the financial gravy train more evenly distributed amongst the multitude of other financial institutions.

I’m not sure I follow, could you rephrase?

? Or why increasing rates to borrowers above the RBA is not greedy?

The rate they charge borrowers reflects a combination of each bank’s funding costs, the availability of funding, the credit risk of the borrowers and the bank’s profit margin. This means rate movements do not move 1:1 with the RBA published rates.

 

[medicowallet]

I don't think I have much to add to the above post.



Except to say that the rates I get from the minor players are better for me, compared to the big four, irrespective as to whether they have different margins, therefore it would be quite easy for market forces to force extra competition onto the big 4, if people actually cared enough to do a little bit of work.

Seriously, I get sick and tired of bank bashers who have the energy to bash banks, yet the lethargy to keep feeding their own monster.

PLUS

no politicians, nor beneficiaries of the housing bubble are game to say that it is their own investment, be it greed or demand driven, that has allowed the banks to do what they want to do.

It just keeps coming back to the same thing.

The naivity of the consumer on multiple fronts (overpaying for property, failing to shop around)
The stupidity of the government (Labor and liberal) on multiple fronts (advising, subsidising housing market etc)

 

[alphaman]

If the market is such that banks are able to be "greedy", then this is an inefficient market. Surely, the question as a consumer is, could we get a better deal with a different system.

Come on, laziness will never get you a better deal, whatever the system is.

 

[Mofra]

We don't give government guarantees on all those other things. The government doesn't protect the others as much from competition either. I'm not saying weaken them by opening the market up to additional banks, but I sure as hell don't mind a bit more regulation for my benefit.

The guarantee was a kneejerk reaction to an event that led pollies to panic, and may well not be renewed.
I dare say if a Telstra or Optus went belly-up pre NBN, they'd receive a bailout too to keep communications services connected.

 

[Mofra]

Michael Pascoe has an interesting perspective on the big 4 rate rises, and it does make some sense:

http://www.theage.com.au/business/making-hockey-and-banks-look-good-20101101-1796h.html

All the bluff and bluster about those naughty overpaid bankers lifting mortgage rates doesn't mean much in the real world. Yes, the CEOs are over-paid, but when they put up rates independently of the RBA, it just means the RBA has less need to increase its cash rate. If the banks gave back all their extra rises tomorrow, the RBA would race to make up the difference.

 

[Julia]

WRT privatizing losses (publicly funded), this did not happen in Oz during the GFC,

No, it didn't, nor was there any likelihood of it being necessary, because of the health of the banks.

Implicit in the wording of your original post was that taxpayers did in fact bail out banks.

 

[Calliope]

Michael Pascoe has an interesting perspective on the big 4 rate rises, and it does make some sense:

http://www.theage.com.au/business/making-hockey-and-banks-look-good-20101101-1796h.html

An extract from above link;

The mock concern about bank rate movements is just one of the cynical games Wayne Swan and Joe Hockey play with us. Well, I hope they're just being cynical – it would be a bigger worry if they actually believed it.

The only one who wins from this tomfoolery is Bob Brown.

 

[drsmith]

Standard variable rates from the 4 big banks are as follows,

ANZ: 7.41% comparison 7.52%
NAB: 7.24% comparison 7.37%
CBA: 7.36% comparison 7.49% (prior to yesterday's 0.45% rise in response to the RBA's 0.25% increase)
WBC: 7.51% comparison 7.64%