Consumer group Choice has submitted a draft to the Federal government’s Financial Services Inquiry. In it they have drawn attention to the record levels of bank margins to cash rates. They have also decried the exorbitant interest rates on credit cards, despite there being a series of rate cuts.

Choice submits that, “This … does not support the view that there is effective competition in Australia’s retail banking sector.”

Former CBA head David Murray. Photo:

Former CBA head David Murray. Photo:

Federal Treasurer, Joe Hockey, implemented the inquiry in response to outrage from the media and wider community at the wholesale profiteering carried out by banks.

In a move that seems like putting the fox in charge of the hen house, Mr Hockey appointed David Murray (former head of CBA) to chair the inquiry.

It will come as no surprise then that an interim report from the Inquiry states the “banking sector is competitive, reflecting a number of indicators.”

Which indicators? Certainly not the high interest charged versus the low interest given.

Banks are in a good position: They borrow money at low interest from the Reserve Bank and lend it out at higher interest to the community. They fund this lending through equity in wholesale money markets and bank deposits.

 During the GFC banks could only secure these funds by paying more to both international investors and domestic deposit holders. Obviously they weren’t happy as this ate into their own profits. So they pressed the government to be allowed to pass on (in full) the costs of these extra payments to customers through higher interest rates.

As morally dubious as that might have been things became worse when the funding costs of both sources fell and yet the banks did not ease the interest burden to either of them.

The only real winners are mortgage holders: Average mortgage rates have fallen 0.15% over the past year despite the official cash rate not changing.

Banks do, however, offer special rates to those they want to entice or keep.

The rest of us just have to lump it.

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