Banks: deep pockets, short arms and shorter memories

by | Feb 11, 2012 | Business

IF YOU have tears, prepare to shed them now. For so long we have been subject to heart-wrenching tales of onerous funding costs and tough conditions, even as the collective bottom line of the big four banks has shot majestically through the $24 billion mark.

Alas, with some evidence finally emerging that their cost of funds might really be rising – expanding credit spreads and the contraction in NAB’s fourth-quarter net interest margins – the bank-basher bashing campaign has reached fever pitch.

Singing loudly from their dog-eared song-sheets, the bank-basher bashers are at it again, lamenting the cruel plight of banks. It started two weeks ago with stories by the bank lobby’s favourite media pundits.

Then came the exclusive interviews, culminating in John Morschel’s front page this week, ”Stop bank bashing, ANZ tells politicians”.

”I wish the politicians would get their facts straight before they start making public statements,” said the ANZ chairman. ”There was no capital provided to any Australian bank by the government and the only thing they did was guarantee wholesale funding, for which they charged a fee and earned a hell of a lot of money.”

Morschel seems to be suggesting that politicians have no right to be expressing an opinion about the banks because the only thing the government ever did for them was to provide some shoddy wholesale funding guarantee.

He must have forgotten the world’s most generous deposit funding guarantee – anything up to $1 million. That little beauty sparked a stampede of capital into the big four that sent the likes of mortgage funds to the wall.

Then there was that special protection from short-selling, a snap rule change that overrode normal market liquidity mechanisms to favour a big few institutions. Let’s not forget the corporate regulator’s persecution of that poor little private client stockbroker who sent an email to clients one morning in 2008 that correctly evaluated the risks facing Macquarie Bank. He got the sack. Other small players were rattled in the ”rumourtrage” witch-hunt.

But the greatest freebie of all – unsurprisingly omitted from debate as the banking lobby and its loyal scribes rewrite history – was the RBA emergency cash facilities.

Correct us, dear reader, if we, ah, err, but didn’t the RBA loosen up its rules on ”repo” agreements and the like during the financial crisis? The banks were able to swap their risky assets for cash. No other business can dump its dodgy assets into the government in exchange for cash.

And now there is evidence that this was more than a mere ”liquidity window”. It seems the government did provide funds to bail out at least one bank in 2008, Bankwest. In the months leading up to the deal to sell Bankwest to Commonwealth Bank, the Reserve Bank provided some $10 billion in support.


Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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