What rhymes with banker?

No prizes for guessing what today’s topic is. Its been big news all over the country, even on Cup Day, and with good reason. And the burning question that’s been continually asked just keeps on going unanswered:

How do the BIG 4 - Commonwealth, Westpac, NAB and ANZ - justify putting up interest rates above and beyond those set by the Reserve when they’re announcing record billion dollar profits at the same time?

The Commonwealth have been at it over the last few days (don’t worry, the others will follow soon) and sent out a midlevel executive to explain so that the $16 million a year man, CEO Ralph Norris, could run and hide and avoid the tidal wave of scrutiny.

The excuse? Its costing us more each month to borrow money from overseas to give to punters as mortgages. It’s the excuse that’s been running for a while now and the one they trot out with every excessive interest rate rise. But the thing is, its complete hogwash, particularly this time.

Here’s what the Reserve had to say on bank funding costs after their 5 October 2010 meeting: "(Board) members noted staff estimates that bank funding costs had been relatively flat over recent months. While the spread between lending rates and funding costs is below its peak in 2009, it remained well above pre (global financial) crisis levels." 

So bank funding costs have not gone up over the last few months so the Commonwealth’s excuse for this most recent excessive rate rise does not hold up. Yes, it looks like bank funding costs are higher than pre-GFC days, but it certainly doesn’t seem like its affecting them and their margins too badly if they’re able to make record billion dollar profits. And don’t even start me on the hidden fees, the branch closures and the CEO bonuses.

So what to do? What to do?

Well, there’s not a lot the Government can do if Australia wants to remain a free capitalist democracy with an open and modern financial system. But the moves to make it easier to reduce mortgage exit fees and stop price signalling are some ways to go.

That’ll help in terms of increasing competition which is definitely needed given the Big 4 hold 80% of the lending market in this country. A hold that grew dramatically as a result of the GFC so once again it seems like it wasn’t such a bad thing for the banks and they need to stop using it as an excuse to gouge their customers and jack up profits.

Profits that at last count, after all 4 recently released their end of year financials, stand at a combined $22 billion (25% increase from last year).

That’s a lot of money in anybody’s book. But especially for an EveryDayMan.

EDM.