When interest rates rise or fall there are winners and losers. Those with mortgages cheer a small drop in lending rates; investors, many relying on investment yield, suffer when deposit rates fall. But the customary differentials are being twisted as banks baulk at following the signals given by the Reserve
Bank's Official Cash Rate.
The OCR has plummeted in the past 12 months - from 8.25 per cent to 2.5 per cent - but banks haven't been keeping pace. This week MPs on the multi-party finance and expenditure select committee said banks were charging too much for their variable rate loans and pointed out that their profits have remained high during the recession. Reserve Bank Governor Alan Bollard echoed the point, insisting that there is still room for the banks to cut shorter-term lending rates.
Predictably, the banks hit back saying that their margins are being squeezed by "brutal" competition for the investment dollar. But it was hard to weep for them when ANZ National chief executive Jenny Fagg proudly told Morning Report that the Australian banks were "four of the 10 top-rated" (read "profitable") banks in the world.
In a recession, when there is a squeeze on global liquidity, a strong banking system is important to our economic viability. But in balancing the books, the banks are plainly leaning too far their own way. A bank that decided to break ranks and put people before profit could well find that people remember that fact - and reward them with custom when times aren't so tough.
