John Armstrong: Report puts banks under pressure - but not much

No politician ever lost votes overestimating public suspicions that the country's banks are run by heartless, self-aggrandising fat cats who are trying to screw as much cash as they can out of their customers.

So the all-party parliamentary report slamming the trading banks for not passing on the Reserve Bank's most recent cuts in interest rates to mortgage holders while also failing to slice their profit margins when people are hurting from the recession is good politics.

It is especially clever politics on the part of David Cunliffe, Labour's finance spokesman, who has used the report to lead the charge against the banks and make National look ineffective in the process.

It is also rather empty politics, however. The adjective "powerful" is frequently attached to Parliament's finance and expenditure committee. That is a misnomer. The committee's report is basically a toothless tiger.

Having been tabled in Parliament, the report is now at the bottom of a long list of such select committee documents on the order paper which rarely, if ever get debated by the House.

This one conceivably might get the House's attention because every party in Parliament endorses its contents. Thereafter, however, the report lies on the table and dies on the table.

Its recommendations "urging" the banks to pass on interest rate cuts and "encouraging" the Reserve Bank to work closely with the trading banks so business can access credit carry no formal weight.

Moreover, the report says little more than what has already been expressed by Finance Minister Bill English and Reserve Bank governor Alan Bollard - people who have far greater influence and who, as yet, have themselves failed to jawbone retail rates down.

English stressed that not even the Government - let alone a select committee - had a role in setting interest rates. He suggested that people vote with their feet and switch banks if they are unhappy.

Regardless, the banks had valid reasons for ignoring his and and Bollard's earlier attempts to talk down retail rates. Around four-fifths of the cuts in the official cash rate over the past year have been passed on to customers with floating rate mortgages.

Rates can fall only so far before they become unattractive to depositors and they look for other investment options. The banks, however, need deposits before they can lend.

The banks will take some notice of the committee's "concern" because they do not wish to get offside with the country's legislators. But it is English (and Bollard) whom they really don't want to upset.

They will be conscious of English's reminder that the Government has put in place a bank deposit guarantee scheme which has stabilised the financial sector.

The Finance Minister is now suggesting it is time the banks in return explained their profit margins. The committee's report puts even more pressure on the banks to do so - but not that much more.