Perhaps I should be more clear - I'm not bashing banks. I have no axe to grind over CEO pay or bankers bonuses. Neither am I suggesting that the banks have any responsibility to anyone other than their shareholders. I'm just making a simple economic observation, the large profits imply, to me, that there could be room for more efficiency in the sector.
I'm afraid that I don't see the direct correlation between the size of the B/S and the risk of a bank. Size is a factor, but there are may others.
If for example we had a smaller 16 instead of the big 4, would these institutions be a greater risk to customers by virtue of their size? Or perhaps the quality of their B/S would be more important. They would still be very large institutions, meeting Basel cap. requirements may indeed mean a higher proportional cost for a bank with a smaller mkt cap, but perhaps also the trade off vs more competition would mean the consumer could still come out ahead?
My comment re more even distribution of profits/market share amongst other players stems from the sticky nature of bank customers. If the market were more efficient I would expect the profits and market share of the big 4 to fall and those of the smaller player to rise more quickly.
I understand why the banks rates don't move 1:1 with the RBA, I simply think they can do this because customers are sticky. If they were not, they would not be quite so fast to do this. BTW one assumes they were making a profit on the bid/offer before the rise - so increasing in line with the RBA would still afford them almost the same profit.
alphaman -laziness won't get you a better deal. But accepting that bank customers are sticky and doing something about it, is not so different to implementing compulsory super. In some areas we already facilitate change.
Mofra - good point. But only begs another question - if a system is too big to fail, why are the shareholders afforded the implied free insurance and why are they the only ones to gain from the monopoly/duopoly status. Perhaps the gov should have a few shares!
medicowallet - you seem happy with the idea that we all take personal responsibility for ourselves. I agree with you. Would you apply this logic to all areas - compulsory super, universal healthcare, education. We're just drawing lines in the sand here, why stop with banking?
Julia - At no point did I imply that the banks were bailed out by taxpayers. I boldly stated that my belief is that one would have been if it were necessary and I admit I could be wrong! I don't share your confidence, even in hindsight, that there was no likelihood of it being necessary. If the GFC had killed demand for raw materials, the Oz economy had faltered, just maybe Oz house prices (some of the highest in the world) could have fallen - then I imagine the banking sector would not have looked quite so rosy. Furthermore, the Australian Government at the time offered a guarantee of customers funds. This guarantee has a value not only to the customers, but also the banks themselves, and a cost.
What I would prefer? I don't think I'm qualified to offer a sensible structure. I would certainly like to see what a completely free financial market would end up looking like, we might end up back where we started, we might not. Facilitating a simple 1-click moving of banking services from one bank to another would be a good starting point.
I reiterate I'm not suggesting that the banks have any responsibility to do anything. But I am interested to know, does everyone else think the Oz banking sector is as efficient as it gets? Is $20bn profit a fair price tag to pay for what we get? Would you leave everything as is, or would you like to see some sort of change?
I'm afraid that I don't see the direct correlation between the size of the B/S and the risk of a bank. Size is a factor, but there are may others.
If for example we had a smaller 16 instead of the big 4, would these institutions be a greater risk to customers by virtue of their size? Or perhaps the quality of their B/S would be more important. They would still be very large institutions, meeting Basel cap. requirements may indeed mean a higher proportional cost for a bank with a smaller mkt cap, but perhaps also the trade off vs more competition would mean the consumer could still come out ahead?
My comment re more even distribution of profits/market share amongst other players stems from the sticky nature of bank customers. If the market were more efficient I would expect the profits and market share of the big 4 to fall and those of the smaller player to rise more quickly.
I understand why the banks rates don't move 1:1 with the RBA, I simply think they can do this because customers are sticky. If they were not, they would not be quite so fast to do this. BTW one assumes they were making a profit on the bid/offer before the rise - so increasing in line with the RBA would still afford them almost the same profit.
alphaman -laziness won't get you a better deal. But accepting that bank customers are sticky and doing something about it, is not so different to implementing compulsory super. In some areas we already facilitate change.
Mofra - good point. But only begs another question - if a system is too big to fail, why are the shareholders afforded the implied free insurance and why are they the only ones to gain from the monopoly/duopoly status. Perhaps the gov should have a few shares!
medicowallet - you seem happy with the idea that we all take personal responsibility for ourselves. I agree with you. Would you apply this logic to all areas - compulsory super, universal healthcare, education. We're just drawing lines in the sand here, why stop with banking?
Julia - At no point did I imply that the banks were bailed out by taxpayers. I boldly stated that my belief is that one would have been if it were necessary and I admit I could be wrong! I don't share your confidence, even in hindsight, that there was no likelihood of it being necessary. If the GFC had killed demand for raw materials, the Oz economy had faltered, just maybe Oz house prices (some of the highest in the world) could have fallen - then I imagine the banking sector would not have looked quite so rosy. Furthermore, the Australian Government at the time offered a guarantee of customers funds. This guarantee has a value not only to the customers, but also the banks themselves, and a cost.
What I would prefer? I don't think I'm qualified to offer a sensible structure. I would certainly like to see what a completely free financial market would end up looking like, we might end up back where we started, we might not. Facilitating a simple 1-click moving of banking services from one bank to another would be a good starting point.
I reiterate I'm not suggesting that the banks have any responsibility to do anything. But I am interested to know, does everyone else think the Oz banking sector is as efficient as it gets? Is $20bn profit a fair price tag to pay for what we get? Would you leave everything as is, or would you like to see some sort of change?