Update: I was holding this post back, but the government has decided that the bank guarantee is to stop.

Australia's financial regulators say the guarantee scheme for large deposits and wholesale funding – introduced at the height of the global financial crisis to help the nation's banks borrow funds overseas – can now be phased out because of improved funding conditions.

The decision on Tuesday by the RBA to keep the cash rate at 3.75% was seen as a surprise by some (not me - hehe). Could it be that it is the big four banks that actually caused the RBA to keep rates on hold because they are increasing the margin between the cash rate and their standard variable rate (SVR). The Australian reported that "RBA deputy governor Ric Battellino warned monetary policy in Australia was higher than the official cash rate because of the move by the banks after the three rate rises in 2009."

IG markets analyst Ben Potter said:

"Comments that stimulus affects are fading and that banks have hiked in excess of the official cash rate have clearly hit home with the RBA"

I thought that I should create a chart that shows the increase in the difference between the RBA cash rate and the SVR.

Back in November 2007, the gap between the RBA cash rate (6.75%) and the SVR (8.75%) was 1.82%. This is the rate it was for year and years.

Now - the gap is 3.01%.

The banks are now taking more than 1% extra - and where does that go? Does that mean we should thank the banks for the interest rate staying the same? Will the banks ever return the gap to 1.82% - or will they continue to gouge their customers in their search for bigger profits?

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joni: ...

If there are "improved funding conditions" then the government must demand that the banks return to a normal level of gap between the cash rate and the SVR.

1

Sun 07 Feb 2010 15:41:24 EST

nasking: ...

"the government has decided that the bank guarantee is to stop."

Good timing.

It's irritating that the banks moved beyond the Reserve bank's rate but I believe the banks had to move fast, recoup moneys considering the amount of debt...including slightly wonkier debt in OZ...and now they can stand on their own feet and deal w/ some of the crap that will hit us this year.

And eventually the rates will be forced to hold...then reduce slightly due to the impact. Be an interesting year w/ speculation about China's "wonkiness" underneath, the Indian/Pakistan situation, shifts in "climate change" remedies, the ongoing Iran saga, and the debt bubbles bursting here and there across the landscape and Greece type episodes.

At least our higher, but still manageable rates, will provide levers to lessen the blows...and incremental changes by government will allow now for the smaller credit unions, building societies and others to compete and force the biggies to be more competitive after the necessary consolidation. Will take awhile. Still crazy days...but not quite as loopy as before.

The rate increases helped dig out some of the self-funded retirees from their holes too. But there's only so much help you can give them...a new generation of mortgagees & small businesses have to be taken into regard too.

Always gonna be a bit of pain here or there...but at least we avoided the FALLOUT other nations had...where interest rates were too low to the amount of outstanding & wonky debt.

We've got something to work with.

But i'll still gripe about exec/ceo pay/remuneration.


N'

2

Mon 08 Feb 2010 09:30:50 EST

Min: ...

Nas', a very interesting read. How true. Rates go up one group suffers, rates go down another group suffers.

3

Mon 08 Feb 2010 10:08:42 EST

joni: ...

CBA has just announced that its profits have jumped by 13%.

Ralph Norris says in The Australian:

This is a very good result at a time when many of our global peers struggle with the ongoing consequences of the global financial crisis

And does he think the extra 1% the banks are taking from mortgagees might be the reason?

4

Wed 10 Feb 2010 09:42:19 EST