The love bank

This level headed man, intelligent, well educated and not given to overt displays of emotion became unusually animated lately.

The sudden change came during our conversation about Australian banks when I mentioned that Australian Government ministers should not interfere with the banking business, especially when it comes to telling banks to lower their interest rates. He retorted that I should not be too worried about banks; they could look after themselves pretty well. This response came from a man who earns good money and owns property. However, the open display of animosity surprised me. I did tell him that the strong banking sector is a blessing, which Australia enjoys at the time of an uncertainty and open fears of European and American public about the soundness of their banks. The man I am talking about is not the only one, who feels negatively about banks – quite a significant proportion of an Australian society feels the same way. Most of these people are not what Marxists would call proletarians. They are, typically, solidly middle class professionals, who are traditionally antagonistic towards banks. 

Even self funded retirees, whose income, like mine, depends on interest rates fluctuations, often bag the banks, talking about them with disdain and contempt. 

It has mystified me – why Australians are so negative about their banks, especially at the time of the threatened recurrence of the Global Financial Crisis. The soundness of the Australian financial sector is an envy of the world, which recognises this soundness by appreciating the Australian dollar to an astonishingly high position on the world markets. Suffice it to say that even Russians, who kept their foreign currency reserves mostly in US Dollars, Swiss Franks and some Euros decided to allocate a significant proportion of their national savings to buying Australian Dollars. 

To put it simply, (some people would say – too simply) there should be no rational reason to treat banks any differently than other businesses. Say, a bread shop sells bread. Or a university sells education. Or fish’n chips shop sells hamburgers. Any business sells something, be it knowledge, soft drinks, or bricks. The only difference between all of them is in the kind of products they sell. Banks happen to sell money. It is their product. In other words, when we go to a bank we go there to buy money, like a sack of potatoes, or a car or a pair of shoes. The interest rate is the price we pay for use of a bank’s money. That’s where the similarity stops. Any business is geared for maximisation of a profit. No profit – no business. No government minister would berate a newspaper, TV station, strawberry farm, milk bar or a brewery for putting up the price of their products as a response to the changes in market conditions. That’s because even they understand that if there is no profit a business will go down the gurgler and the tax base will shrink. Banks are different. It is possible to bucket them with impunity and even score some points, despite the precariousness of the big and very dangerous market at the moment. 

The recent downgrading of Australian Big Four banks by the Standard and Poor ratings agency has created tighter borrowing climate for the banks. Higher risk – higher cost. International Monetary Fund openly warns our bank that they have allowed themselves to become over involved in the mortgages market, thus, endangering their assets in case property bubble would burst as it happened in Japan and the USA. 

One month ago I needed to borrow some money from the bank, the customer of which I was for at least 30 years. I discovered that it was quite difficult and the manager of this particular branch told me in confidence that the loan I was getting was the only one this branch was lending out in the last month. In other word – banks are afraid to lend, they are afraid to trade. 

We are entering uncertain times. Euro is in trouble, American dollar is shaky. Comparatively speaking, Australia is in strong position. This is not the time to undermine Australian Banks’ stability by demanding that they cut their profits. We just might, collectively, shoot ourselves in the foot.