A six month long Senate inquiry into competition within the Australian banking sector has concluded with the release of the Committee’s final report and recommendations, including minority reports from the Government and Independent South Australian Senator Nick Xenophon.
The views of Australian finance workers were provided to the Inquiry via written submission and in person by FSU National Secretary Leon Carter who was called to provide evidence to the Inquiry.
The report contains 38 recommendations, 14 of which are already being progressed by the Federal Government.
Most media articles on the Committee’s final report have concentrated on a recommendation that the Government reverse the exit fee ban that enables customers to move their mortgage from one lender to another without being penalised by exorbitant exit fees. The Government have already signalled that they do not intend to reverse the ban, arguing that the ban is imperative to improve competition in banking.
It is true that Australia’s banks came through the GFC relatively unscathed. Principally, this was as a result of the regulatory system and political policies that Australia has in place. But our banks and finance industry should not be allowed to simply push aside the GFC as a bad memory and return to practices that brought the GFC about. We need to draw lessons from the GFC and strengthen our finance industry through stronger regulation.
Wall Street bankers couldn’t believe how easy it was to invent new products, pull the wool over the ratings agencies eyes and sell AAA rated securities (later to be found to be worthless) to investors around the world. A new language emerged, Securitisation, Mortgage Bonds, Collateralised Debt Obligations, Sub Prime, Credit Default Swaps.
The more money the Wall Street banks made, the more they poured into Main Street banks in search of more and more mortgage bonds. And Main Street banks used the money to continue to lend sub prime mortgages to anyone, regardless of whether they could afford to repay.
And of course many millions of people couldn’t afford to repay, especially when the honeymoon interest rate on their sub prime mortgage ended and jumped up 2 or 3 percent. The house of cards collapsed, leaving millions homeless, millions out of work, collapsing banking systems around the world and devastating whole economies.
Why would these presumably, intelligent people running some of the biggest banking houses in the world; Goldman Sachs, Citibank, Bank of America, UBS, Deutsche, enter into such risks?
The answer: corporate greed driven by short-term thinking and powered by massive remuneration packages that rewards risk taking and immediate returns. From the CEO loaded up on bonuses worth tens of millions if they achieved short term profit growth, to the bank employees loaded up on performance bonuses for the volume of debt they sell.
In Australia, our banking system wasn’t heavy geared into these toxic US packages, but we weren’t immune from the failures they triggered. Our banks are heavily reliant on overseas borrowing and the money stopped flowing. Stock market falls saw companies such as Storm Financial, who had persuaded people to take margin loans against their homes to invest, collapse taking with them people’s life savings and homes.
Our Government provided our banks with taxpayer guarantees on deposits and overseas borrowings to prop up the system. The Government also pump primed the economy to ward off the global economic recession.
So, two years on, what lessons have been learned and what has changed in our financial system? Read more »
All eyes are on the National Australia Bank this week following the bank’s expensive and very public “break up” with the other three major Australian banks ANZ, Commonwealth Bank and Westpac. The so-called bank war over mortgage exit fees has one clear aim – to lure customers away from their existing bank. Does that make it a war, or just some long overdue healthy competition? And does it confirm what we all suspected, that the big four up until now, have acted as a cartel?
The Federal Government is as pleased as punch about NAB’s announcement that customers switching their mortgage from a rival bank would have their exit fees covered by NAB, with Federal Treasurer Wayne Swan rightfully taking credit for this development as the Government moves to ban exit fees for good.
What it does indicate is that at least one of our major banks have heard your message loud and clear – you want better banking.
Opinion is divided on whether NAB’s strategy will benefit consumers in the long run, but any reduction in fees is welcome. After all, if anyone can afford to reduce consumers’ costs it’s our banks. Recently Commonwealth Bank and Westpac have reported on their first quarter earnings - both have reported an increase in profit for the quarter and are on track to break records on their full year profits for 2011. Read more »
