16 per cent return on equity and too big to fail. Bloody hell!
Treasurer Wayne Swan has raised expectations of an assault on the power of the big four banks in next month's banking statement saying he is "determined to see a new pillar in the system" to take on Westpac, National Australia, the Commonwealth and ANZ.
The so-called fifth pillar would be built around credit unions, building societies and wealth management firms such as AMP and AXA which are currently in takeover negotiations.
Asked on the Nine network whether he would approve the AMP bid for Axa Asia Pacific in order to help create the fifth pillar he said he would not speculate but had made it abundantly clear he would "welcome additional investment in the banking system to provide more competition for the big four".
Each incurred the wrath of the Treasurer by lifting its mortgage rate by between 37 and 45 points in the wake of the Reserve Bank's Melbourne Cup day move of 25 points.
"There are better deals down the street," Mr Swan said yesterday. "If you go to a credit union you may be able to get up to 100 points better in terms of your mortgage. The big banks behave in an arrogant way because they feel confident their customers won't walk."
The Treasurer spoke as the Whitlam Institute released a study finding the big banks "overcharge their home loan customers"... avoid pressure to reduce costs, and funnel the excessive profits to their senior executives.
Prepared by former Labor staffer Nicholas Gruen of Lateral Economics the study claims home loans have become "commoditised" and simple to provide.
"Normally when a product becomes commoditised, its price falls to eliminate the margin, but the mortgage margin is stuck where it was in 2004, at around 2 percentage points," he the Herald.
Dr Gruen wants the government to lend its AAA credit rating to mortgages with a safe loan to valuation ratio, enabling non-bank lenders to get access to funds for mortgages on the same terms as the big four.
In Canada where there is such a system the insurance costs as little as 0.5 per cent of the loan.
Treasurer Swan confirmed his package would make it easier to switch lenders saying it would give "customers the capacity to walk down the street and get a better deal".
In a submission to the Senate banking inquiry Melbourne University finance professor Kevin Davis has proposed allowing borrowers to switch without the discharge of the mortgage and without a new property valuation. Lenders would no longer have "absolute discretion" to change the interest rate" but would have to vary it by "reference to objective information".
Published in today's SMH
Commoditising Banking Nov 2010
Commodising Banking Executive Summary
Kevin Lewis Senate Banking Submission
. Don't wish too hard. Ralph Norris on bank costs.
. Don't believe those APRA figures, believe these ones. Oh, not those ones.
. Banks costs. They're increasing. But by less than the cash rate.