Wednesday, December 01, 2010
In a submission to the Senate banking inquiry the Reserve says the big banks' funding costs have moved "broadly in line with the cash rate" since mid 2009.
The submission is at odds with inferences drawn from the Bank's board minutes suggesting it believed over-the-odds rate rises were justified.
"Most of the increase in the major banks’ funding costs occurred during 2008 and early 2009, at the peak of the dislocation in markets," the submission says. "Since mid 2009 the major banks’ overall funding costs are estimated to have moved broadly in line with the cash rate, reflecting offsetting factors"...
Deposits have become more expensive for banks relative to the cash rate as has wholesale funding, but at the same time the cost of short-term debt has been falling, resulting in a steady cost of funds relative to the cash rate for over a year.
Regional banks' funding costs have been increasing more quickly.
The statement suggests the Reserve Bank does not believe the claim made by the Commonwealth Bank on Melbourne Cup day that it lifted its mortgage rate 45 points instead of 25 because of an increase in " wholesale funding and retail deposit costs".
Submissions from the big four banks are yet to be published on the inquiry website.
The Reserve said the major banks' total funding costs had climbed 90 to 100 points above the cash rate since the first rumblings of the financial crisis in mid 2007.
But the big four had more than made up for that by lifting their mortgage rates 120 points beyond the cash rate over the same period.
The Reserve expects the big bank's wholesale costs to climb from here on as cheaper long-term loans expire and are replaced by more expensive ones. But it expects the increased cost to be modest, "around 5 points over the next year."
Australian mortgages are not particularly expensive compared to those overseas with the markup over official rates "around the middle of the range of most other advanced countries.
While Australian bank profits are well above those in other countries, they are "similar to those of banks in other countries before the crisis" and similar to those of other major Australian companies.
Bank fees have fallen over the past year and mortgage exit fees are beginning to fall.
Credit unions and building now charge the lowest exit fees, of $364 for a $250,000 mortgage, followed by the big banks who charge $462 and the non-bank lenders who charge an average of $2066.
Particularly effective in reducing fee income have been new rules that allow the owners of automatic teller machines to charge users directly. As a result of the change customers are making fewer and bigger withdrawals, making more use of their own banks rather than other banks' ATMs and withdrawing more money at retail cash registers.
Published in today's SMH and Age
Reserve Bank Banking Inquiry Submission
. Don't wish too hard. Ralph Norris on bank costs.
. Wednesday column: The Governor won't back the banks
. Relax. Nervously. Reserve Bank Governor Stevens
. Banks: Don't believe those APRA figures, believe these ones.
. Banks costs. They're increasing. But by less than the cash rate.
. Bank margins aren't shrinking!