ABA defends bank rate moves
(15 March 2012 – Australia) The Australian Bankers’ Association chief executive Steve Munchenberg warned that banks can’t simply follow the Reserve Bank of Australia (RBA)’s cash rate moves without risking the stability of the financial system.
He also said that attacks on the industry by politicians could erode investor confidence in the sector and ultimately increase funding costs for Australian banks.
Bank executives have defended the move saying the run-up in funding costs – both deposits and offshore borrowings – were hurting profit margins.
"What the community wants is simple – follow the RBA and there won’t be a problem. But … we can’t give a water-tight commitment to do this without risking the stability of the banking system," Munchenberg said in a speech to a mortgage conference in Sydney.
"It’s worth noting that, already, some Australian companies can raise wholesale debt more cheaply than the banks, despite having lower credit ratings.
"It is highly ironic that the attacks on the industry from politicians could actually increase the cost of money to Australian banks," he said.
Still, he said it was partly the banking sector’s own fault in creating the impression that the RBA set mortgage rates. He noted five of the last six RBA cash rate movements had been followed by the banks.
"It is therefore perfectly understandable that the community and customers still believe that the RBA determines their rates and that the banks are cheating when they don’t follow," he said.
Bank executives have defended the move saying the run-up in funding costs – both deposits and offshore borrowings – were hurting profit margins.
"What the community wants is simple – follow the RBA and there won’t be a problem. But … we can’t give a water-tight commitment to do this without risking the stability of the banking system," Munchenberg said in a speech to a mortgage conference in Sydney.
"It’s worth noting that, already, some Australian companies can raise wholesale debt more cheaply than the banks, despite having lower credit ratings.
"It is highly ironic that the attacks on the industry from politicians could actually increase the cost of money to Australian banks," he said.
Still, he said it was partly the banking sector’s own fault in creating the impression that the RBA set mortgage rates. He noted five of the last six RBA cash rate movements had been followed by the banks.
"It is therefore perfectly understandable that the community and customers still believe that the RBA determines their rates and that the banks are cheating when they don’t follow," he said.
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