Boy, hasn’t Joe Hockey copped it for his calls for a banking debate. From the Government — surprise surprise — from the press gallery, from the media at large and from his colleagues. It’s a rare unity ticket these days that has The Australian’s editorial, Laura Tingle and Wayne Swan all on the same page.
I’ve dished out plenty to Joe Hockey in his time as shadow Treasurer. I’ve cast doubt on his fitness for the role, and much more besides. And there’s no one suggesting he exactly communicated his views effectively early yesterday.
Still, it would be a terrible shame if that was allowed — or more accurately, if we allowed vested interests to use it — to distract from his key message, on which he is exactly right: we need to reconsider how we regulate the banking cartel in the wake of the GFC.
While Hockey is pilloried inside the Canberra bubble (Don Randall? Seriously? Who cares?), key officials were providing ample evidence that he’s right. Yes, Ken Henry at Estimates last night knocked off the idea that governments should be back in the business of regulating interest rates. But Treasury was also saying — bluntly saying — that the banks had no case for raising interest rates outside the RBA cycle and that consideration was being given to how best to provide additional competition for them. And Graeme Samuel would like additional powers for the ACCC to deal with the blatant price signalling the banks are engaging in when they speculate about the need to lift rates.
That comes on top of the RBA’s blunt statement about borrowing costs. Three key financial regulatory institutions are clearly saying we have a serious problem with an anti-competitive finance sector.Treasury, ACCC, RBA. Bank, bang, bang at the banking cartel.
And that’s in addition to the Future Fund’s David Murray calling for Australia Post to enhance competition by getting into financial services more heavily by providing an outlet for services offered by other firms. Christopher Joye has been kicking this idea around for a long time. At the start of the year, Crikey ran a story that the Government had commissioned a scoping study of a similar proposal. Wayne Swan’s office denied it vehemently.
When it comes to competition with the big banks, we can’t forget we have a second-tier of medium-sized banks. They should be the first target of efforts to boost competition with the big four. But medium-sized outfits such as Bendigo Bank are penalised for their smaller size and poorer credit rating — second-tier banks couldn’t afford to use the Government’s banking guarantee, for example, because it cost them more to access than the big banks, due to their credit ratings.
But as the big banks seek to use their secure profit flow from domestic banking, and an implicit government guarantee, to chase growth into riskier activities and foreign markets, there’s a different risk dynamic at work: it’s the big banking oligopoly that presents the greater systemic risk due to their pursuit of high growth and their too-big-to-fail status. The smaller banks, which stick to their core business of domestic borrowing and lending, present much less of a threat to the Australian economy if things go disastrously wrong.
A re-weighting of this comparative risk — which moves us away from the analysis framework provided by the discredited ratings agencies — should be one of the first considerations in any discussion about how to boost competition. And APRA should be focusing more clearly on monitoring the big banks’ chase for growth to see what risks they’re exposing themselves to.
Hockey has broken what has been a political conspiracy of silence on post-GFC banking regulation, based on the assumption that our success in avoiding the catastrophe endured by the US and European financial systems demonstrates that all is well here. Not merely is that assumption flawed, it fails to recognise that the GFC itself has dramatically reshaped our financial system — reshaped it in favour of the banking cartel, at the expense of consumers and businesses. The GFC has opened a major regulatory gap that we need to address.
The really strange thing is, why has it taken a Liberal shadow Treasurer to do this? You’d have thought a Labor Treasurer would have been keen to pursue ways of breaking down the market power of the big banks.
No doubt, “someone” should be doing “something about the banks” (and their excutive pay scales) – but they should have been doing it for longer (ago) than the almost 12 years that his party was in “power” (and gave us the “first home owners assistance package” the value of which seems to have gone straight to the house price and straight onto the mortgage, “plus interest”) and didn’t use the same ones he reckons this government should be using, now!
And on a point of “relevance” – has someone “out there”, got, at hand, a break-down of “the history of interest rates” (including rises and falls) during those “12” years (March ’96- November ’07)? By that “popular comparison”, would they actually consistently be lower than during the term of this “Labor government”?
The so-called “banking cartel” is only a brief interlude in the history of banking competition.
Higher profit margins will lead to more competition in due course.
Competition in the future will compete away profits just like it did in the past.
“Price signalling” is a kinder outcome than credit rationing.
It sits comfortably with continuous disclosure and free speech.
More government control is the last thing Australia needs.
Good analysis Bernard .The risk is with the big 4 oligopoly ..not the smaller players like IMB which has 12% in capital to support its mainly consumer deposit base.
Sadly there is so much bellyaching and bemoaning and navel gazing on this tortured topic ..to which Bernard’s piece is but one more contribution.
What would make the difference would be a government takeover- tomorrow- of a regional player like IMB .
The big bank executives and shareholders could but look at wonder at the public flocking to their newly crowned rival, whilst the staff would be queing up to join .APRA and RBA could do nothing to resist the oncoming tide..and the government could secure at least another 2 terms.
Within 12 months the banking landscape in this country would be transformed forever ..and no more carping from unhappy customers!
[You’d have thought a Labor Treasurer would have been keen to pursue ways of breaking down the market power of the big banks.]
This is true, but given the environment – of the concerted response to the mining tax and now the NBN – together with the Govts in ability to sell an economic reform, it hasn’t been possible.
You make some pertinent points on the need to review the banking system. However, you’re barking at the full moon if you think Hockey really wants to bring the big banks to heel. He is making cheap political mileage out of interest rate fears, which has been a stock-in-trade of the LNP for many years.
I suggest you re-visit your take on the political motivations of Hockey et al and look a little more forensically at what is behind the political rhetoric of the day. I’ve also had a bit of crack at you over your piece on the Afghan war debate as well. I appreciate Crikey’s efforts to counter a lot of the drivel masquerading as journalism in the MSM (with some notable exceptions such as Laura Tingle), but I would appreciate a tad more rigour to your analyses.
Politics is a dirty game most of the time and with a rampant opportunist like Abbott in charge of the Coalition spin….well, you know! Under that scenario lies your answer as to why Hockey is flapping his lips on banks. Remember, this mob has opposition to the re-regulation of the financial markets in their DNA and would ensure government has a light hand on the tiller when it comes to the sort of shenanigans that delivered the GFC in the first place (just look at the record and beware of deep harbours).