SUBJECTS: RBA's cash rate decision, stimulus, bank profits, bank guarantee, unfair contract terms legislation
JON FAINE:
Chris Bowen is the Minister for Financial Services, Superannuation and also the Minister assisting the Treasurer. Chris Bowen, good morning.
CHRIS BOWEN:
Good morning Jon, nice to talk to you.
FAINE:
The banks are the big winners in all of this, are they not? They've been making more money out of the financial crisis than everybody else put together.
BOWEN:
Well, we do have profitable banks in Australia and that in many respects, compared to what other nations have been through, is a good thing. Yesterday what we've seen with the Reserve Bank's increase in interest rates is the recognition that the Australian economy is behaving quite differently to the rest of the world, and of course everybody would like to see interest rates lower rather than higher, particularly if you've got a mortgage, but we are seeing a decision by the Reserve Bank, a judgement by the Reserve Bank, that the economy is edging towards recovery and they've made that decision, and of course it's a matter for them, that it's time to increase interest rates by that 25 basis points.
FAINE:
Minister, there's a couple of assumptions in what you've just said. First of all, I don't think we have an economy, we have different economies within the nation. Some parts of the nation are going very nicely, thank you very much, and then there are other parts, both sectors of the economy and geographic parts of the nation, for which this is nothing short of a disaster.
BOWEN:
Look, I certainly agree with you that we have different parts of the economy, that's absolutely right, and that's one of the great challenges for Australian economic policymakers. You've seen over the last five years, for example, Western Australia absolutely take off and other states were in different situations, but the Reserve Bank doesn't have the luxury of having differential interest rates in different states and different economies. And indeed, the Commonwealth, in its fiscal policy, we have to make a judgement in relation to the whole economy. Of course, you can spend more money in different parts in fiscal policy, but nevertheless, you still have to make that judgement about what's in the best interest of the whole economy, and that's one of the challenges, both for the Reserve Bank and for us as the Government.
FAINE:
Are you prepared to do anything about what you said was a good thing, which is that we have profitable banks, but we don't just have profitable banks, we have voracious banks. $15 billion profit during the financial crisis, Minister. Isn't that, for you, an anomaly?
BOWEN:
Well look, as I say, you'd much rather have banks in profit than banks going broke...
FAINE:
But that much profit when everyone else is struggling?
BOWEN:
Look, I'm the first to say that there have been some practices by the banks which I think have been beyond the pale.
FAINE:
Well, what are you doing about it?
BOWEN:
Well, for example, a number of things. We've got our unfair contracts law coming into place. That means that individuals and regulators can challenge what they see as unfair practices, and I'm on the record as saying things like mortgage exit fees and other contingent fees be something that I think could come under the scope of that. We've taken action in terms of the guarantee to help smaller banks. You have to remember that...
FAINE:
There aren't any left anymore.
BOWEN:
Well, I'm not sure that's quite right, Jon.
FAINE:
RAMS has been swallowed by Westpac; Wizard is owned by Aussie, which is a third owned by the CBA; St George is owned by Westpac.
BOWEN:
Yeah, there has been consolidation.
FAINE:
CBA owns BankWest.
BOWEN:
I don't think you can say there's no small financial institutions left in Australia anymore. Yes, there has been consolidation.
FAINE:
On your watch.
BOWEN:
And the guarantee that we put in place was very important in assisting those small institutions because before we saw the guarantee come into place, you were seeing a big dash for the big four. You were seeing a lot of people, in that very tense period of the collapse of Lehman Brothers, etcetera saying, 'well, I like my small bank, I like my credit union, but this is a very tenuous period so I'm going to go with the strength, I'm going to move my money to one of the big four'.
Now the retail guarantee that we've put in place has been very important in calming that down, so that smaller institutions could say, 'stick with us, we're very safe, but even if you have those concerns, the Federal Government has guaranteed your deposit', and that was vital.
FAINE:
No, the taxpayer guaranteed their deposit, so now the taxpayer is being slugged for offering the banks and their shareholders that safety net, Minister.
BOWEN:
Slugged in what way, Jon?
FAINE:
Well, the margin now, the margin between the cash rate and the banks' rate has doubled. It used to be 1 per cent, 1.1 before the GFC; now it's 2.1. And we guaranteed them. Taxpayers underwrote their risk and now we're being slugged for it.
BOWEN:
Taxpayers have guaranteed bank deposits and wholesale borrowing by banks to ensure the stability of the financial sector. Now Jon, the problems that we're talking about today – and there are issues in competition in the banking sector, the Treasurer and I would be the first to agree – but the problems we are talking about today are much different to the problems we would be talking about if we had had to come in and bail out financial institutions, or smaller banks had failed, there'd been runs on smaller banks. I mean, you have to compare what we had today to what was possible if the Government hadn't acted with these guarantees.
And yes, as I say, I agree with you. I'm not defending the banks and some of their practices. There are some instances where I think bank fees and charges have been beyond the pale, and that's why we've introduced measures such as the new unfair contracts law, which will enable some of those to be challenged.
FAINE:
Alright, thank you Chris Bowen, the Minister for Financial Services and assisting the Treasurer.