The circus so far.

The senate enquiry into the banking sector has been rolling along for a few days and seems to have become a bit of an embarassment for the Treasurer as it is getting harder and harder to find anyone, on either side of the fence, who thinks any of his latest ideas are any good.

But we guess that is what you get for putting together policy in 4 days and pre-empting an enquiry containing most of the major “players” that you didn’t bother to talk to when building said policy.

Just in case you missed what has happened so far here is a little re-cap. Please let us know if we skipped over anything important.

Glenn Steven’s (Governor of the RBA) turned up, warned everyone about moral hazard, said the banking system is actually ok and that touching it now would be a silly idea because it would probably lead to lower lending standards and create lots of consequences that no one has even thought of yet.

Michael Bath from the Australian Office of Financial Management (AOFM ) appeared to explain that his office was already in the market for RBMS having spent $12.537 billion in the last two years purchasing securities. (In fact they did a purchase today from Wide Bay Capricorn Building Society that has a large exposure to Qld residential property. Tax payer’s money well invested !)

John “we’ll save you” Symond appeared, claimed the proposals from the Treasurer were a “joke” and “chicken feed”, said that an additional $4 billion of taxpayers money was nowhere near enough , he needed to see at least $30bil, preferably $40bil per year before he was happy. He also claimed the AOFM had shafted him because they wouldn’t buy his securities because he was partly owned by the CBA. He was also annoyed because no one had bother to call him and ask his opinion earlier on.

Australian Bankers’ Association chief Steven Munchenberg stated that non-bank lenders were basically stuffed, because they had a broken business model that relied on sustainable and cheap funding, which was something that no longer existed in the post-GFC world.

NAB chief Cameron Clyne said that the treasury and the RBA don’t know what they are on about, and that the banks should move their cash rates independently of the RBA so everyone understood that they were no longer linked. Once they had done that everyone would understand it, and then the banks would then be free to do whatever they wanted.

Ralph Norris from the CBA politely said that the government should be “very careful of tilting the playing field” otherwise there could be “unfortunate outcomes” and Australia could become Ireland or the UK and or the US which all had problem caused by poor lending standards. Oh and by the way it is was important that the Government didn’t end up carrying an “unacceptable degree of risk”. (Barf!)

ANZ Bank boss Mike Smith hinted that his bank was going to take Cameron Clyne’s advice by stating that funding costs would be subjected to a “steady increase in pressure” for at least another 2 years. So you can guess what that means.

Some exciting allegations came from the Council of Australian Small Business Organisations who accused the banks of playing on the short term money markets by deliberately delaying EFTPOS payments and investing the money instead of paying businesses on time.

The Australian Chamber of Commerce and Industry (ACCI) claimed that banks are not lending to small businesses anymore and that has forced them to use higher cost lending facilities such as credit cards, with over 60% of small businesses claiming that they were providing some finance to their businesses in this way.

And finally; The Mortgage and Finance Association of Australia, the peak body for non-bank lenders and home loan brokers, said that if small lenders had to abolish exit fees then they would have to put up interest rates, which would mean they would be on par with banks and therefore no one would use them.

So there you are, a bit of a round up. Seriously you couldn’t make this stuff up.

There have also been many other submissions and other people appearing outside the enquiry making relevant comments about it. It is however turning into a giant circus. The big players are now having fights about whether they did or did not have “actual” conversations with each other about the proposed banking reforms. The Treasurer is claiming he consulted widely, and the bankers are saying “he didn’t call me”.

It seems the reforms will do little to help existing bank customers, because any exit fees in existing contracts stay. The banks obviously don’t want these reforms, the RBA and some from the Treasury including Ken Henry are stating it is basically a bad idea, and the smaller lenders are saying the package is inadequate and that some of the reforms could destroy their businesses.

But, most importantly of all to us; Absolutely no one has even bothered to ask the question that actually matters, which is “why as a nation do we need more funding for credit, when everyone with an IQ over 25 knows that it will simply be funnelled into housing, which will simply lead to higher house prices and even less business investment?

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  1. That's a great synopsis, ED. I'm suffering from some manner of political/economic/lies-damned-lies fatigue and can't really be bothered to wade knee deep through what's leaking from the orifice of the government regarding the banks these days.

    So thanks and keep it up.

  2. I've just spent an amusing few hours looking at the written submissions:

    Yes, this is indeed an excellent synopsis. But one person DID ask the Q that really matters, about the level of debt – Steve Keen. The Winston Smith of our times?

    I can understand why Ryan (Dec 16) is tired of the lies, yes, but our collective apathy is fodder for the government sponsored debt fuelled ponzi scheme named "residential housing".

    One wonders how long the banks can keep increasing the share of lending to housing (i.e. taxpayer subsidised asset price speculation), at the expense of lending to small business (i.e. productive investment), without unemployment going up?

    With covered bonds now approved, the can is kicked a little further down the road.