Monday, August 4, 2008

The Bank Always Wins


We’ve all been conned.

In the wake of the sub-prime crisis in the United States we have seen Australian Banks pushing up interest rates above and beyond the increases set by the Reserve Bank. They have told us that their profitability is under threat from the increased cost of wholesale funds. One bank has even gone so far as to suggest that even if the Reserve Bank cuts interest rates, it would not necessarily result in a fall in the rates charged by the banks. They have all been lying…

A survey by has shown that the bank margin has in fact increased from 1.35% to 1.8% in the six months to July. The evidence suggests that even though it was true that costs for the banks rose as a result of the credit crunch, those costs have fallen since February. But the banks are still putting their rates up.

So how can they get away with this? Well, the other effect of the credit crunch was to undermine the market share of the non-bank lenders. For the last decade they have been taking market share from the big banks and forcing margins down. After the credit crunch however, those non-bank lenders found themselves caught short and have lost the edge they once had. As a result, the big banks have been able to not only regain some market share, but to set their price levels too.

Far from suffering from the effects of the credit crunch, it would appear the big banks are enjoying the benefits, as customers look for the security of big institutions over specialist lenders. For the first time in a long time the banks are back in the box seat, and they love it.

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