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From Webdiarist Alan Thornhill’s Private Briefing website with many thanks.

Australia’s banks take a risky path, holding back on rate cuts
by Alan Thornhill

Australia’s big four banks are taking a serious risk by holding out on the latest interest rate cut.

Their argument, that this is necessary, because they now face higher costs raising the money they lend, is not convincing.

Even the usually mild-mannered Treasurer, Wayne Swan, says he has seen little evidence of that.

And an independent expert supports him.

Sean Cornelius, of Infochoice, told the ABC radio program PM last night, that in Novenber 2007, the average variable home loan interest rate charged by Australia’s banks, was 1.82 percentage points above the Reserve Bank’s target rate.

Now, though average margin that banks charge has blown out by amost 1 percentage point, Mr Cornelius said.

The big four banks, effectively, operate as a government protected banking cartel.

That has its advantages.

Australia’s banks, after all, have remained strong and solvent, when many in the United States, England and several other countries have not.

Mr Swan has clearly lost patience with Australia’s big banks.

So severely, in fact, that he told Fairfax radio, late yesterday, that they deserve “a good kick up the bum, occasionally.”

That’s not parliamentary language.

But it will resonate with the public.

“They (the banks) have to justify their position in the court of public opinion,” Mr Swan added.

There has been little sign, so far, though that the banks will step forward, either singly or together, to explain themselves clearly to the public.

In present circumstances, keeping quiet, as the banks have been doing, is not necessarily a good idea.

The government is arguing, very strongly, that it is doing all it can, to help Australians cope, as the global economic crisis hits the nationnal economy.

It is saying, too, that the banks should be playing their part, in that national effort.

This is powerful talk.

So if the banks do, in fact, have a good case for holding back, on the benefits of the latest rate cut, they would be wise to state it, very clearly.

So far, they are not doing so.

And no business, no matter how big or how dominant, can afford to ignore public opinion.