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Swan’s bank package is a fizzer

Frank Zumbo

by Frank Zumbo

02 Feb 05:30am

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Filed under: Banking, Banks, Big Four Banks, Consumer Protection, Wayne Swan

24 comments

Have you had a close look at Wayne Swan’s December 2010 bank package? Don’t worry if you haven’t yet as you haven’t missed much.

Don’t let the guy in the left corner’s likeness to Wayne Swan fool you. The treasurer’s December 2010 bank package has no fizz whatsoever.

For those who have, it’s clear that it’s so light handed and minimalist that the big banks aren’t bothered by it. In fact, the big banks have even told the Senate banking inquiry that they actually like aspects of the package.

So much for Swan’s tough talk regarding the big banks. Given how much of a fizzer the package will be, one has to wonder if Swan’s announcement was more about being seen to be “doing something” in response to the public anger towards the big banks.

With so much expectation created in the lead up to the announcement by Swan and his Government’s spin doctors, it’s disappointing that Swan has missed a golden opportunity to promote real competition to the 4 big banks.

If there’s one sure thing about Swan’s latest bank package is that, just like his 2008 bank switching “package,” the problem of the market power and dominance of the 4 big banks will not go away.

Just wait and see what happens next time the RBA announces a rise in official interest rates. The harsh reality is that 4 big banks will again cry poor and raise their mortgage rates above the RBA rise.

Sadly for struggling Australian borrowers Swan’s latest bank package will do nothing to put downward pressure on interest rates. Like the failed Fuelwatch and GroceryChoice “packages,” it’s clear that we get a lot of talk and grand promises from this Federal Government but little in the way of real and effective action to help drive down prices and interest rates for the benefit of consumers.

So what is the problem with Swan’s bank package? Well the devil is always in the detail and Swan’s bank package is no exception. Here are just some of the concerns with the package:

  • The proposed outright ban on exit fees will only apply to new home loans from 1 July this year. This doesn’t help all those existing customers with mortgages. All these existing customers will continue to pay exit fees if they seek to switch. Another problem with an outright ban on exit fees on new loans is that the 4 big banks will simply cover their costs from establishment fees or other fees;

    •  

  • Swan’s proposal to “boost consumer flexibility to transfer deposits and mortgages” is certainly window dressing as this merely refers to conducting a “feasibility study” on “account number portability” and “speeding up” the development of “frameworks” for transferring Lenders Mortgage Insurance. Account number portability raises technical challenges and may take years to implement and even then offers limited value. On Lenders Mortgage Insurance Swan could have made a real difference by giving borrowers an immediate ability to transfer the insurance on a loan from institution to institution;

    •  

  • Swan’s proposal to introduce “a mandatory key fact sheet for new home loan customers” will be of little, if any, practical value to consumers given the considerable information already publicly available to assist consumers to compare the cost of home loans between financial institutions. In any event, the banks and mortgage brokers already provide this level of information to consumers;

    •  

  • The proposal to empower the ACCC to prosecute anti-competitive price signalling will rarely, if ever, be prosecuted by the ACCC because the proposal requires the ACCC to prove that the “price signalling” had the “purpose” of “substantially lessening competition.” Purpose and a substantial lessening of competition are both notoriously very difficult to prove in court. The proposed prohibition on any “private communications” between competitors regarding prices will also be next to impossible to enforce in practice as detection of such private communications are virtually impossible without a new express power for the ACCC to tap phones under this proposed new law;

    •  

  • The proposal to fast-track legislation to get “a better deal for Australians with credit cards” simply focuses on giving consumers some additional information on credit cards and requiring consumers to “pre-agree” to go over their credit card limit or to get unsolicited credit limit extension offers. Additional information and requiring a consumer’s agreement in advance regarding credit limits will do nothing to put downward pressure on credit card interest rates or deal with any excessive credit card fees;

    •  

  • The launch of “a national community awareness campaign to empower consumers in banking” including a new “Government protected deposits” symbol is simply a PR exercise which is short on detail. Highlighting the availability of alternatives to the 4 big banks doesn’t help consumers if they can’t seamlessly switch to those alternatives or if the big banks remain so dominant;

    •  

  • Establishing a taskforce to enhance ATM competition reforms is of little comfort to consumers as any proposals arising from the taskforce may take years to implement and may not change the competitive landscape favouring the 4 big banks;

    •  

  • Swan’s announcement that some form of retail guarantee will be a permanent feature of our financial system fails to indicate if the current level of retail guarantee will continue. While currently the Federal Government guarantees deposits of up to $1milion, the danger here for consumers is that the level of guarantee will be watered down after the current guarantee ends in October 2011;

    •  

  • Swan’s plan to provide up to $4 billion investment to support the securitisation market is a drop in the ocean as much more liquidity is needed in that market to provide a pool of competitive priced funds for smaller lenders;

    •  

  • Allowing all banks, credit unions and building societies to issue “covered bonds” to raise funds will actually assist the 4 big banks in extending their dominance as they will be much better placed to issue such bonds.

    • The bottom line is that Swan’s package is a fizzer as it doesn’t provide any immediate relief for struggling Aussie families increasingly financial victims of the market power and dominance of the 4 big banks.

    Most commented

    24 comments

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      • Brenda says:

        05:33am | 02/02/11

        Despite tiresome bank-bashers, not everyone welcomes low interest rates. Depositors who rely on their savings as a means of non-government support actually find relief through increased interest rates!
        Bank bashing in this country is a foolish hobby. Some people paid off houses when loan rates were more than 10% - they worked hard and met their commitments.  Loans are a business arrangement, they are not an entitlement. We are customers, not beneficiaries.

        This country has one of the best bank systems in the world, but people seem to think it’s mandatory to bag institutions that have never failed.  What’s this nonsense all about? We should be teaching our young not to over-borrow, live within their means, work hard, make sacrifices and meet their commitments.  My long-term financial plan includes a small number of bank shares and hopefully they will grow in value to help keep me independent of taxpayer support.

        Reply

      • Farmer says:

        06:33am | 02/02/11

        Oh Brenda, please try to understand that way interest rate increases work. Businesses pay substantially more (usually around 4%) than home borrowers. To continually increase business rates puts pressure on employers to keep staff like you on. Believe it or not, employers work hard. Yes, some people probably did continue to make payments when interest rates were 10% - they would have had minimal debt left.

        Try doing the figures on 10% simple interest on money in the bank. Then do the figures with a negative correlation. Heard of a thing called interest on interest?

        Hawke & Keating were responsible for businesses paying up to 23% interest in the early-mid eighties, thereby effectively killing many employers. But depositors were happy. Sadly, Australia needs employers more than it needs kings in their counting houses counting out their money but not spending it.

      • BobM says:

        06:53am | 02/02/11

        By the same token -  we should have the same system in the US where the interest rate stays the same for the term of the loan. Why should banks be able to lift their interest rates when it suits them? When you buy a car or take out a loan, the interest rate is fixed, but with a home loan you can take it out at, say, 6% and a few years down the track it can be 8 or 9%.  Why does the Reserve Bank let the Big 4 do the dirty work for them? There must be a better way of regulating inflation without lining the pockets of these crooks.

      • Brenda says:

        07:16am | 02/02/11

        Farmer, what do you mean by “keep staff like you on?”  I’m a parent/teacher who single-handedly raised three responsible children after my husband died.  I had to pay for our house, and at one stage took extra weekend and evening tutoring work to make ends meet.  There were no hand-outs, no baby bonuses and no parental leave.  In the earlier days, no Medicare.  We worked happily on - without complaint. 
        What’s with the kids and columnists who seem to think banks owe us? Where is the sense of personal responsibility?  Borrowing money is a huge step, and paying it back is a huge responsibility. 

        And my husband was a real farmer. I wish he was still here.

      • Tubesteak says:

        07:45am | 02/02/11

        Very well said, Brenda.

        Banks are a business with the purpose of making money. They do not exist just so that a bunch of lazy whingers can buy an $800,000 McMansion in the Hills District plus SUV plus Falcodore plus jet ski plus Bali holiday plus residential investment property.

        Banks do not owe anyone any favours. If you don’t like them there are many non-bank lenders in the market. Do your research and stop being so lazy and ignorant.

        Farmer
        Interest rates are set based on economic activity which is based on the global economy. Hawke and Keating were not reposnible for lending rates hitting 23%. Interest rates were high everywhere in the developed world. You can’t blame our government for that. If you don’t pay attention to the economic cycle then don’t whine because of your own ignorance.

        Live within your means.

        BobM
        Ever heard of a fixed rate loan? You can fix them for up to 5 years. Choose the best times in the interest rate cycle and you won’t be too worried.

        Better yet, live within your means and you won’t have to worry about interest rates moving by 0.25% here and there.

      • TT says:

        08:25am | 02/02/11

        Ouch Farmer… you just got well and truly owned by Brenda… lol

        I love moments like these…

      • Against the Man says:

        05:49am | 02/02/11

        Hey guys look at the Gillard government. Forget the Rudd years of incompetence, just in these last 8 months we have a government that has come up with zero, yes zero good policy or solution to our problems. Banks, asylum seekers, carbon emissions, gay marriage, funding for QLD, BER, health care, cash for clunkers, the citizen’s assembly, My School, My Hospital etc, etc…...........all mega fail. This government has flunked out HaHa!!!!!!!!!!!!!

        Swan, Roxon, Garrett all in hiding only briefly popping out to mumble something before disappearing.

        C’mon Arbib! Rudd was replaced for much less f**k ups. Get rid of Gillard, you have to do it sooner or later.

        Reply

      • Wendy says:

        06:19am | 02/02/11

        What on earth did you expect from this government. They have no financial nous, they shouldn’t be in charge of their pocket money never mind the country’s finances. They only know, Spend, Spend Spend, dosen’t matter what on just spend till its all gone. Still you get what you ask for - let’s see how long before we are completey bankrupt.

        Reply

      • C1 says:

        06:24am | 02/02/11

        @Against the Man,

        This period is not meant to produce anything; it is designed to produce (as it always has) the environment for the true saviour to arise from the ashes and lead us all to salvation - BILL SHORTEN!!!!!!!

        Then you will see some action, ha ha ha - Not.

        Reply

      • Michael says:

        07:09am | 02/02/11

        Having worked with both state and federal labor I can honestly say I have never seen such a useless bunch of self-interested, corrupt bastards in my life. If you have ever worked with one of those managers who never really does anything but talks up a few ideas here and there and delegates the details to “someone else”, you will know exactly what these guys are like. NSW labor and federal labor have exactly the same model for government - the public service will do it all, and they will talk it up. They offer absolutely no value whatever. swann does not even have a rudimentary understanding of the basic principles of banking. I have it on very good authority that he had private lessons from treasury in one of the big 4 banks to explain simple concepts like securitisation. The person who had to give him the lessons told me that he and his staff were so stupid and so ill informed that not even high school economic principles could be assumed. This from the man who supposedly runs our country’s finances. labor are an empty vessel. A sales team drunk on power and selling the half baked ideas of a 20-something year old, inexperienced public service. It could work if they understood or cared enough to properly lead the public service, but alas, they just don’t care for such boring things as good management or running our country.

        Reply

      • Big bad property developer says:

        08:15am | 02/02/11

        Thanks Michael, you have confirmed my worst fears. I am actually in Wayne Swanns electorate, was an electoral scrutineer on election night.  He isn’t there with a huge majority, only that there are pockets of housing commission that he skates through.  If there was a redistribution and he lost the suburb of Zillmere he would be out for sure.  I reckon if those people less able to afford jacked up electricity prices begin to think that Wayne Swann is the cause, watch out, there will be a mass movement to the Coalition.

      • TChong says:

        08:50am | 02/02/11

        Well done Mike, all those stored up talking points delivered. Good work.
        Now back to the LNP website for more !

      • Flexo says:

        07:11am | 02/02/11

        Someone is supposed to be accountable. Swan? Gillard? One of you has some explaining to do. Don’t side track the issue with other issues. I know QLD is recovering from the floods, I know there is unrest in Egypt but I want to know how you are going to deal with the banks and solve the other problems we have. Can you deal with more than 1 problem at a time, if you can’t than you will NEVER solve anything, in which case please resign. Gillard you have been shamed by history there is no rewind button.

        Reply

      • grumpy old man says:

        07:47am | 02/02/11

        well, what a suprise! If my memory serves me, did’nt a few people say that Swan’s bank package was all hot air and window dressing at the time, and were not those people abused for pointing out that the package was rubbish?

        So, any bets as to what the Flood Levy will really be spend on? Track record of this Govt is that it will all be spent on consultants, admin costs and feasibility studies, with very little ever being spent on concrete or bitumen

        Reply

      • Dash says:

        08:00am | 02/02/11

        Swan talks tough and doesn’t deliver. All talk and no action.

        So it’s business as usual for the Labor party.

        Reply

      • nossy says:

        08:59am | 02/02/11

        Thank god Frank that we can look forward to “one trick Tony the one trick pony” coming to our rescue rre the Banks !

        Reply

      • Ryan says:

        04:12pm | 02/02/11

        Well at least they have a long history of paying back ALP debt nossy, the ALP hasn’t a history of being able to even pay back its own debts. Don’t let the facts get in the way of a good bit of propaganda there though, we know who the one trick pony is, the looser, backstabber, liar Gillard.

      • nossy says:

        05:51pm | 02/02/11

        @Ryan - I am sorry Ryan but according to respected journalist Laurie Oakes the “one trick pony” is none other than Tony Abbott !  hahahhhhhhhhhhhh

      • Ryan says:

        08:05pm | 03/02/11

        @nossy: sorry nossy, I am not ignoring you, I am just finding it really hard to type with all the laughing I am doing, “respected journalist Laurie Oakes” oh stop stop it hurts.

      • Fatchecker says:

        09:27am | 02/02/11

        Is that all you got?
        Weak as Zumba.
        PS lose some weight or we might not be blessed by your presence here any longer.

        Reply

      • Adam Diver says:

        01:19pm | 02/02/11

        To be fair to Swannie, I am not really sure what can be done to increase real competition in the financial sector.

        I feel like the horse has bolted and that the aquisitions and mergers should never have gone ahead. I also think talk of controling interest rates or putting downward pressur on them is insincere. The government has limited effect, and higher interest rates generally indicate a stronger economy.

        Although saying that Swannie should has a responsibility to not over promise and under deliver, which is obviously the case here.

        Reflecting on that last statement, screw it, you may continue to verbal Swan because its a mess of his own creation.

        Reply

      • Mary Monica Rocher says:

        01:45pm | 02/02/11

        Whats the alternative to the Swan Song?
        Do we allow the Liberal Demons solve this?

        Reply

      • JB says:

        12:11pm | 03/02/11

        The real problem for those wanting to switch banks is not and has never been exit fees (unless you are trying to exit a fixed rate before the end of the fixed term). From the Big 4 they are generally less than $1,000 if you switch in the first 3-4 years. Lenders such as Rams/Wizrad (when they existed - are different - maybe a couple of ‘000). The problem is Lenders Morggage Insurance. If the LVR is over 80%, it will be paid everytime a loan is switched, even though it is the same security etc. It is a complete rort. The two biggest Mortgage Insurers almost have a monopoly and are milking mortage holders.
        You should only pay mortagge insurance once, and it should be transferrable from loan to loan (with the possibility of a small admin charge).

        Reply
     
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