Australian Politics General...

[SirRumpole]

The head of NAB was looking pretty shifty at Senate estimates when answering question on rogue financial advisors in his bank.

We need a RC to bring all this stuff out otherwise people will lose faith in the banking system.

 

[Value Collector]

The brilliant thing for the banks is that a person could have $10 million in one of their transaction accounts, pay the $4 monthly fee, and earn absolutely zero interest. Check the interest rates for say CBA's smart access account for example.

Now, you can make the argument that it'd be silly to leave $10 million in one of those accounts, but I'd suspect it's also not very ethical of a bank to not pay interest on such a large amount when no doubt they're using these funds to expand their balance sheet and profitability.

Firstly, with that size deposit you wouldn't have to pay an account fee.

But, lets say the person does pay the $4.

Is that person benefiting by having their money kept safe? I say yes, they can sleep easy without fearing it will be stolen.

How much do you think it would cost to provide the same level of security under a different system?

Also there is limits to what the bank can do to earn money from you when you money is in an at call account.

 

[Value Collector]

The brilliant thing for the banks is that a person could have $10 million in one of their transaction accounts, pay the $4 monthly fee, and earn absolutely zero interest. Check the interest rates for say CBA's smart access account for example.
.

An honest question here.

If you had $10 Million cash, and you needed to keep in in cash for a few weeks for some reason, would you just keep it at home or would you put it in the bank as fast as you could fearing it may be stolen?

If you admit that you would want to bank it as fast as you can for fear of theft, you are admitting that the bank is offering you a good service, which even in the absence of earned interest has value to you.

 

[SirRumpole]

If you had $10 Million cash, and you needed to keep in in cash for a few weeks for some reason, would you just keep it at home or would you put it in the bank as fast as you could fearing it may be stolen?

If you admit that you would want to bank it as fast as you can for fear of theft, you are admitting that the bank is offering you a good service, which even in the absence of earned interest has value to you.

If they didn't try to lend it to someone without my approval it might be a good deal.

That's what banks pay for, not storage space (they only keep a small percentage of their deposits on hand anyway), but the actual use of the money for purposes unknown to the owners of that money. That's why they need to give a better return.

Let me give you an example.

I have a valuable car with no place to store it. If someone offers me a secure storage space I may pay them for that space. If they want to hire my car out to people I don't know who may use it as a race car for all I know, for a good sum of money then I want a proportion of that money.

Make sense ?

 

[luutzu]

I will exit the conversation here we are just going round in circles, But as I have said, a bank offering a safe place to store cash is a benefit in its self, and thats all most depositors really deserve, inflation hedging is about all that should be expected, only when you lock into a term deposit.

Dude, they're not "offering a safe place" for depositors money; they're using people's money to make money. And as part of that business, they just have to keep it safe.

Again, would you or any banker lend anyone any money at a "hedge against inflation rate"? No you would not. You would want inflation + a reasonable interest.

An honest question here.

If you had $10 Million cash, and you needed to keep in in cash for a few weeks for some reason, would you just keep it at home or would you put it in the bank as fast as you could fearing it may be stolen?

If you admit that you would want to bank it as fast as you can for fear of theft, you are admitting that the bank is offering you a good service, which even in the absence of earned interest has value to you.

Is the bank just keeping my $10M safe or are they using it to make outrageous amount of profit on?
If they were to make profit on top, shouldn't I at least get a share of that profit that my money help make possible?

Second, are the safes there just to keep my $10M safe, for me; or they're also there to keep the bank's liability safe too? It's also to protect the bank isn't it?

So I bear all the costs to keeping both our money safe; the bank get to play with my money and I get nothing because the bank is obviously taking the risk.

Alrighty then.

 

[Value Collector]

If they didn't try to lend it to someone without my approval it might be a good deal.
?

Then they would have to charge a lot more than a $4 monthly account fee

Dude, they're not "offering a safe place" for depositors money; they're using people's money to make money.

So in you draw at home and in the bank are pretty much the same level of safety to you? I doubt you believe that.

does you draw pay interest?

Is the bank just keeping my $10M safe or are they using it to make outrageous amount of profit on?

Does it matter? the benefit you want is safety, the give you that benefit.

 

[bellenuit]

I have a valuable car with no place to store it. If someone offers me a secure storage space I may pay them for that space. If they want to hire my car out to people I don't know who may use it as a race car for all I know, for a good sum of money then I want a proportion of that money.

Make sense ?

No, absolute nonsense. Your valuable car is unique and is possibly not replaceable. If they lend your car out to others, apart from the potential to be damaged, it will be subject to wear and tear. So what they return to you is not what you gave the person originally.

Your money goes into a pool and what is returned is exactly the same value wise (ignoring inflationary impact). Your money is at call so you could go to the bank the following morning and withdraw it, even though they may have lent out the equivalent amount to other people assuming they meet regulatory liquidity requirements. If it were a massive sum that is more than they are allowed carry in a particular branch, there may be an issue getting it back in cash at call, but that can be handled other ways. You couldn't get you car returned on the spot if they had on lent it to others as the car is a unique object whereas money is just a store of value and its actual physical format is usually of little consequence.

 

[SirRumpole]

No, absolute nonsense. Your valuable car is unique and is possibly not replaceable. If they lend your car out to others, apart from the potential to be damaged, it will be subject to wear and tear. So what they return to you is not what you gave the person originally.

It's the same principle. The money belongs to the depositors, it's lent to whoever the bank wants to lend it to, and they pay a return for the use of the money.

It's not just storage as VC was implying.

 

[Ves]

If you had $10 Million cash, and you needed to keep in in cash for a few weeks for some reason, would you just keep it at home or would you put it in the bank as fast as you could fearing it may be stolen?

The actual answer is - I don't really think I'd have a choice. No one is handing me over $10 million of bank notes, the person giving me the cash, or the bank!

I think the whole 'safety' argument is a bit different these days. If an individual wants to store money he/she has to store it physically. If he/she wants it stored at a bank they store it electronically (the only reason banks keep bank notes is to service people who want them).

The answer to your question is probably different if there was a way for individuals to store it electronically. There is bitcoins, but I don't think that technology is quite there yet.

I'm not really arguing that they are providing a bad service or no service. Just pointing out it's curious that some bank accounts pay no interest no matter what your bank balance is.

All I'm really saying is that if they're charging an account fee, it should be law that the account pays interest equivalent to the cash rate.

 

[bellenuit]

It's the same principle. The money belongs to the depositors, it's lent to whoever the bank wants to lend it to, and they pay a return for the use of the money.

It's not just storage as VC was implying.

It's not the same principle. The money does not belong to the depositors, as the car does in your example. If the bank were to fail, depositors have no direct claim against money the bank lends others and there is no linkage between money you lend to the bank and money the bank lends to others. When you deposit money, you become a creditor of the bank and in the event of the bank failing, you only have recourse to whatever funds are available when all other creditors that are before you in the pecking order have been satisfied. If the were to deposit $100K in the bank and (though unlikely) were to see that same physical stack of cash be onlent to the customer behind you in the queue, you could not make demands of that customer for the return of "your" money should the bank collapse. You only have a claim against the bank.

In the case of the car, it is different. You still have ownership of the car and if the person you lent the car to were to die or go bankrupt, you can lay claim to the car even though it may be in the possession of another if it had been onlent (because you have proof of ownership).

Whether banks should be forced to pay a certain rate for on call deposits or not is really up to the bank. Most banks pay nothing or a miserly amount for on-call, as they in turn make little revenue on onlending those funds (Good bank practice requires the matching of terms between deposits and loans. Thus on call deposits are only lent short term if at all and involve proportionally higher set-up costs if onlent. Banks issue long term bonds and similar for mortgage lending, because they need to ensure that they don't have a run on funds, which they could have if they borrowed short term and lent long term). Remember that on call deposits are primarily (by volume) wage, salary and pension deposits and are usually fully drawn down over the course of the following fortnight. The bank cannot onlend these funds as they are needed to meet their day to day withdrawals.

So one reason interest on on-call deposits are zero or low is because they cost the bank proportionally more to administer than term deposits and their ability to earn interest on those fund are minimal. They also must cover the network costs (branches, ATMs, security etc) that allow the depositors to access those funds at more or less anytime or place. You may notice that some online lenders do offer more attractive interest on on-call deposits, such as ING and Rabobank, and certain online saver accounts of the big banks. But then these have restrictions in place that are not applicable to normal transaction accounts (such as needing to have linked accounts, not being able to use BPAY, no branch or ATM access). So they are offering more attractive interest rates where they can structure access to reduce their own costs.

Getting back to the deposit of $100K at zero interest. This is justifiable as most on call deposits are usually sub $2k (salary or wage deposits) and are withdrawn in lesser amounts ($100 at an ATM). These cost the bank a lot to process and the interest rate reflects that. The $100K type of transaction may represent less than 1% of their deposits by volume, so it may not be worth treating it differently. But some banks do have a tiered rate to account for such transactions (0% up to $5K, 1% $5K to $20K etc).

So to summarise, on call transaction accounts have a low interest rate and even possibly an account management fee, as they have significantly higher processing costs to the banks, involve most of the banks physical and branch personal infrastructure to administer and provide little opportunity for the bank to onlend at attractive rates and terms. So VC is right in saying the banks are really providing a secure short term storage facility for such deposits and one cannot expect much if any interest on them. If a higher interest rate is required, then that is what term deposits are for.

 

[SirRumpole]

If the bank were to fail, depositors have no direct claim against money the bank lends others and there is no linkage between money you lend to the bank and money the bank lends to others. When you deposit money, you become a creditor of the bank and in the event of the bank failing, you only have recourse to whatever funds are available when all other creditors that are before you in the pecking order have been satisfied.

Well you had better talk to VC about that.

He was going on about everybody else losing all their money before the depositors lose a cent.

One of you apparently has the wrong end of the stick.

If you are correct, then the depositors deserve a damn sight better return on their money than they are getting now to cope with the higher risk.

These [ATM transactions] cost the bank a lot to process and the interest rate reflects that

That's why the banks charge EFTPOS fees so they are double dipping aren't they ?

 

[bellenuit]

Well you had better talk to VC about that.

He was going on about everybody else losing all their money before the depositors lose a cent.

One of you apparently has the wrong end of the stick.

We are not inconsistent. I was talking about banking in general and in the event of bank failure the depositors must wait in line in the pre-ordained pecking order. I believe the ATO is at the top, but depositors are much higher than bank shareholders. In the event that there are no funds available when the depositors get their turn, then in some cases there is a government guarantee to ensure depositors get their deposits. But the guarantee doesn't apply in all cases and even when it doesn't, the depositors are fairly high up in the pecking order (but not on top) so their risk level is not so high.

If you are correct, then the depositors deserve a damn sight better return on their money than they are getting now to cope with the higher risk.

I can't see why you are thrashing about so much on this point. In reality what risk are you talking about? What banks have failed in Australia and if there were any (I can't recall), did depositors lose money? If you were to quantify the risk based on past history here, a bank failure in which a depositor lost all their money would be less likely than being hit by a meteor. Do you think they deserve 1% additional interest for that? And that is just for transaction accounts. Term deposits do pay better interest (for the reasons I gave in my last post) and it is the loss of such funds (rather than the weekly pay packet in a transaction account) that is going to hurt the depositor in the unlikely event that a bank without guarantee fails and there isn't enough funds to pay depositors when their turn comes.

Also, it is well know that the big 4 are some of the most stable and secure banks in the world.

That's why the banks charge EFTPOS fees so they are double dipping aren't they ?

Many don't, some only charge for using another's ATM or a foreign ATM.

Bank fees are different between banks as each decides separately the best way to recuperate their costs. Astute on-call depositors can usually do all their banking for free by selecting the right account and avoiding withdrawal methods that add costs. Usually people pay unnecessary fees due to pure laziness and a couldn't care less attitude.

I agree with VC in that I use the banks (mortgage paid off) purely as a convenience to safely house my spare cash and provide me access to it from anywhere in the world. I don't pay any fees (other than foreign ATM and forex fees), but if I had no choice I would still think the service they provide would be worth $10 to $20 per month, possibly more if I ran a business as a tradesman or the like. When I look back at the time I started out working when you more or less had to visit a bank to transact, could only access your funds using stupid pass-books and could only make payments by cheque, things are so much more convenient today.

 

[SirRumpole]

I can't see why you are thrashing about so much on this point. In reality what risk are you talking about? What banks have failed in Australia and if there were any (I can't recall), did depositors lose money?

That's exactly the point I made to VC when he was going on about how much risk shareholders take and why they deserve a higher return.

You can't have it both ways.

 

[dutchie]

Do we need politicians? Since John Howard ended his stint as PM we have had (rabble) governments from both sides who have done nothing but waste our money.
A primary school class would/could have done a better job. What a waste to have all these people with their outlandish salaries and perks (often abused) drawing from the taxes we all work so hard to generate.

Unfortunately this pathetic situation is set to continue for at least another 8 years.

Abolish all politicians I say!

“Oh, the humanity!”

 

[noco]

Do we need politicians? Since John Howard ended his stint as PM we have had (rabble) governments from both sides who have done nothing but waste our money.
A primary school class would/could have done a better job. What a waste to have all these people with their outlandish salaries and perks (often abused) drawing from the taxes we all work so hard to generate.

Unfortunately this pathetic situation is set to continue for at least another 8 years.

Abolish all politicians I say!

“Oh, the humanity!”

duthie, I do believe the majority of people in Australia are thinking like you and me and a political revolution is well on the way.

I hope you are wrong about the situation lasting another 8 years.....IMHO, I believe change will happen a lot sooner.

 

[Value Collector]

That's exactly the point I made to VC when he was going on about how much risk shareholders take and why they deserve a higher return.

You can't have it both ways.

The point is, regardless of how much risk you think exists, share holders are the first to absorb it.

And it doesn't have to mean a bank failure, a bank only fails if share holders capital is wiped out.

Shareholders could lose 10% or 20% or 90% of their equity without the bank failing.

If you think the share holders position isn't risky, then there is no way you can say the depositors position is, because what ever risk the depositors have, the share holders have 10 times more, its the nature of the structure.

Every loan that bank makes, puts share holders equity at risk, if someone doesn't pay their loan back, that comes out of shareholders pockets, not depositors.

 

[SirRumpole]

The point is, regardless of how much risk you think exists, share holders are the first to absorb it.

So maybe we should go back to the building society/ mutual organisation model that seemed to work well before they were taken over by the rapacious banks. All the depositors carry the same risk and get the same rewards and there are no greedy shareholders to rip us off.

 

[luutzu]

The point is, regardless of how much risk you think exists, share holders are the first to absorb it.

And it doesn't have to mean a bank failure, a bank only fails if share holders capital is wiped out.

Shareholders could lose 10% or 20% or 90% of their equity without the bank failing.

If you think the share holders position isn't risky, then there is no way you can say the depositors position is, because what ever risk the depositors have, the share holders have 10 times more, its the nature of the structure.

Every loan that bank makes, puts share holders equity at risk, if someone doesn't pay their loan back, that comes out of shareholders pockets, not depositors.

If shareholders don't like those risk, which tend to come with good rewards, then don't make those risk.

If they decided to take on those risk, then wear it. Profits they keep, losses they bear. Capitalism 101 right?

Why must the bank's risk be at the expense of depositors?

And it is at depositor's expense because they're getting zero real return for their cash.

What's with this head I win, tail you lose business? That's capitalism now is it?

So if the bank goes broke and depositors' money are lose, the gov't will guarantee and taxpayers will pay it off for the bank.

If that guarantee isn't there, how much do you reckon depositors would demand on their deposits to compensate for that risk? Nothing?

So taxpayers are paying for an insurance policy that might, might not, but might come due one day. That's great because the bank won't use it anyway...?

Then depositors ought to pay the bank for taking risk. Banking is a risky business, according to the bank, so the reduce that risk, depositors ought to pay for it by earning diddly. That's fair?

 

[SirRumpole]

"Are you living in the real world?"

Key points:

• Since 2009, 55 financial planners have left NAB because of poor conduct
• An ongoing investigation suggests many still received significant bonus payouts
• NAB boss Andrew Thorburn admits some cases were handled poorly

That was one question asked by an exasperated Matt Thistlethwaite, deputy chair of the House of Representatives' standing committee on economics, to NAB chief executive Andrew Thorburn yesterday.

Mr Thorburn was responding to questions about the bank's financial planning arm and its practices, including how National Australia Bank (NAB) executives paid bonuses despite breaching codes of conduct.

He said an internal review found more than 1,100 staff members failed to meet the bank's code of conduct in the last financial year. In the 2016 financial year, that number was 1,138.

Fifty-five financial planners have left the bank since 2009 because of poor conduct.

"The consequences for those people ranged from a formal warning, through to dismissal," Mr Thornburn said.

"It also involves a reduction or elimination of any bonus. Of the 1,138, there were five senior managers. Two were dismissed and three faced other disciplinary action."

More at
http://www.abc.net.au/news/2017-03-03/nab-andrew-thorburn-house-standing-committee-economics/8321186

Just another example of how banks are ripping us off.

I'm sure the others do the same.

 

[Value Collector]

If shareholders don't like those risk, which tend to come with good rewards, then don't make those risk.

If they decided to take on those risk, then wear it. Profits they keep, losses they bear. Capitalism 101 right?

Why must the bank's risk be at the expense of depositors?

And it is at depositor's expense because they're getting zero real return for their cash.

What's with this head I win, tail you lose business? That's capitalism now is it?

So if the bank goes broke and depositors' money are lose, the gov't will guarantee and taxpayers will pay it off for the bank.

If that guarantee isn't there, how much do you reckon depositors would demand on their deposits to compensate for that risk? Nothing?

So taxpayers are paying for an insurance policy that might, might not, but might come due one day. That's great because the bank won't use it anyway...?

Then depositors ought to pay the bank for taking risk. Banking is a risky business, according to the bank, so the reduce that risk, depositors ought to pay for it by earning diddly. That's fair?

i haven't said share holders aren't happy with the risk they are, they just want to be paid for it, at the end of the day, the competition in the market would rise if profits were unfairly large, and reduce profits.

The heads I win tails you lose example is a fallacy.