Wayne’s (banking) world

We have had secure and sustainable pension reforms (subtext: increasing the pension age) and stronger fairer simpler taxation (subtext: increasing mining taxes) now we have competitive and sustainable banking system – subtext: Wayne is tougher on banks than Joe.

Apparently we need a more competitive banking system to bring down lending rates. Both Wayne and Joe are in competitive agreement about that. Neither, by the way, wants competition to push up deposit rates. They favour borrowers over lenders. A sort of one-sided competition. Of course, if they succeeded in lowering lending rates (which by the way they won’t) the Reserve Bank would simply tighten policy to raise them up again. Party poopers!

Wayne’s package is scored below. Is it better than Joe’s? There is nothing to choose between them really. Choosing neither would be a good option. Unfortunately it is not available; we are stuck with Wayne’s world.

1. Ban exit fees.

These fees are already non-existent or inconsequential for the big bad four. In any event, there are many ways to skin a customer.

Verdict: Useless, though it might encourage some customers from smaller financial institutions which tend to have higher exit fees to move to the big bad four. Good one Wayne.  

2. Appoint Bernie Fraser to investigate account portability

This is infeasible.

Verdict: A good earner for Bernie. 

3.  Mandate a key fact sheet for housing borrowers

The key facts are already provided.

Verdict: Useless but harmless.

4.   Empower the ACCC to stop price signalling

Stopping something that so far as everyone knows has never occurred, and would be difficult to detect if it did, is an interesting prospective exercise in futility.

Verdict: Futile but will have the advantage of stopping very rich bankers from talking too much. 

5.   Crack down on unfair treatment of credit card customers by introducing a whole new set of rules to protect people from themselves

These rules will not help those who use cards sensibly and there is no help for those who don’t.

Verdict: Will if anything push rates up by increasing compliance costs. 

6.   Educate consumers about managing their money (and what a jolly good option smaller financial institutions provide) while at the same time teaching kids financial skills in maths classes

The irony of a government that has wasted so much money “being committed to building the capacity of every Australian to make better decisions about managing their money” is obviously lost on Wayne but, hey, that’s chutzpah for you.

Verdict: Good for the PR and advertising companies employed by the government. Challenging for maths teachers with extended credit card limits.

7.   Establish a Treasury/ RBA task force to enhance ATM reform

ATM reform has been done to death. There is now transparency about ATM fees and most have extensive access to fee-free ATM transactions.

Verdict: Sop to the Greens and Senator Xenophon. 

8.   Make some credit unions and building societies banks

Making more ‘bastards’ albeit small ones is bound to help; exactly how?

Verdict: The ABA’s membership will grow. Some CEOs of credit unions and building societies will become much more important and earn bigger salaries and bonuses.  

9.   Confirm the permanency of depositor protection

The old system has a lot to recommend it. It provided de facto depositor protection while also keeping the banks honest by retaining that element of risk that just maybe the government would not bail them out. Explicit depositor protection is okay but then I would expect banks will be levied.

Verdict: Another cost which is likely to push up lending rates to pay for depositor protection. Oh dear! This is not the result Wayne wants. 

10.   Support the residential mortgage backed securities market, including by using taxpayer money to buy up to another $4 billion of securities – provided they are not issued by the big bad four

This just what we want in an economy stretched because of the resources boom. Spend taxpayer money supporting more lending for houses.

Verdict: Counterproductive; maybe Wayne should talk more with Glenn Stevens. 

11. Allow banks, credit unions and building societies to issue covered bonds

Covered bonds are effectively securities which stand ahead of depositors in the event of liquidation. They only work if deposits are protected. Otherwise depositors will be put at inappropriate risk. However, there may be arbitrage advantages in raising funds using covered bonds, if the extra price purchasers are willing to pay for such bonds exceeds the true market-determined cost of insuring the corresponding amount of deposits.

Verdict: Potential first win for Wayne depending on how depositor protection is organised and priced. 

12. Deepen the corporate bond market by allowing government securities to trade on a securities exchange and by simplifying disclosure requirements for the issuance of corporate securities to retail investors.

Savings have been in short supply in Australia. Prior to the post-GFC uptick in saving, the household saving rate in Australia had been close to zero. In these circumstances, competition tends to show itself in rising deposit rates not in falling lending rates. Helping corporates to borrow more easily from retail investors is good in itself, but it may well put extra pressure on banks’ funding costs not less. 

Verdict: Second win for Wayne but maybe a loss for bank borrowers.

Final score: Wayne 2 out of 12; bank borrowers 0 out of 12.