Thread: Todays Banks

They're bad, but they're there to make a profit. Their shareholders demand it. Unfortunately, the commoners like you and I have no option but to go to the bank. The writing (for increased interest rates) was(is) on the wall for at least two years.

The governments of most western countries started borrowing (huge amounts of) money to stimulate their ailing economies (ours included). Add to this record levels of existing private borrowing (for home, business and consumer loans) and you have a (large) increase in demand for money, and no increase in supply (as there are not many savers).

So there are two possiblities for (commercial) banks to meet demand, both resulting in higher interest rates over the medium term.

1.) Offer additional incentives for people to save (i.e. by giving better interest rates) - this costs the banks more money - The cost of funding goes up, therefore interest rates the banks charge go up.

2.) Borrow money from the reserve bank. When commercial banks "borrow" money from the reserve bank, the reserve (effectively) creates it out of thin air. It needs a 10% deposit (part of your house deposit) and an obligation that someone will pay it back (your loan contract with the commercial bank), and this new money is created. It gets added to the existing money supply. (The genious concept of fractional banking - and by genious, I mean genious for the banks (but thats another story alltogether)). By "printing" more money to meet demand, the supply of money is increased. The increased supply is chasing the same amount of goods, resulting in people willing and able to pay more for the goods they want. (Just think of the housing market in the last decade). This causes that dirty little word called inflation (devaluation of money). Interest rates must always be kept above inflation, therefore the reserve bank has no choice but to increase their interest rates, and this is then passed on by the banks.

The measure of "inflation" is based on the Consumer Price Index (CPI) and considers a weighted average of current household expenditure on a range of productsand services (i.e a standard basket of goods). (It excludes house prices but includes average home loan repayments). The CPI also includes a significant proportion of goods (and services) made outside of Australia.

The inflation in Australia is currently "artificially" low due to the strong dollar, making all imported products and services significantly cheaper then they would otherwise be.

When the AUS dollar (inevitably) starts depreciating against the currencies of our major trading partners, the CPI will increase, which will (inevitably) lead to higher RBA interest rates and higher commercial bank rates. I hope I'm wrong, but I see more "rates pain" on the horizon.

*takes Nostradamus hat off*... now if you'll excuse me, I have to rejoin the wage slave line (a.k.a. reality) and get back to work to be able to afford my morgage repayments!

IMHO this country started down it's slippery slope when people could buy a house with no savings,no proof they can save or any deposit at all.When people who couldn't afford a house got thier deposit off the government or borrowed 100% of thier morgage thats when the rot started,they,like the people who borrowed up too thier eyelids have no one to blame for thier stupidity.Like wise the banks have no reason to charge the rest of us with silly charges like the $2 charge when using another banks teller machines. Pat

All of what you have written is true but do you not think that is was the ordinary Australian taxpayers dollars that were used by the Federal Government to guarantee the Australian big banks through the GFC.How ironic is it that they now ( after virtually crying poor) have all of a sudden shown record profits ( up billions) and their CEO's are earning millions.How bloody poor were they when they started bleating.Also how arrogant have they grown,they now think they are untouchable and can do as they want... isn't that "arrogance personified".
Part of the reasons for the GFC was banks and their arrogant actions , the ludicrous salaries and bonus for one,that started the burst of the bubble.Australian banks with the Australian Governments action of guaranteeing , kept them out of the what transpired in the rest of the world.Have they shown loyalty to their customers and thanks to the ordinary Aussie for the guarantee? I think not,the only loyalty they have shown is to themselves with the roll on effect to their shareholders.The price they say for Australia being in a free market.
I know which I prefer,the older style of banking when they were the lifeblood of ever city and town across Australia whose service to their customers were second to none , not today's so called "free market " banks who basically use " greed " ahead of all else.

Originally Posted by PAT303

IMHO this country started down it's slippery slope when people could buy a house with no savings,no proof they can save or any deposit at all.When people who couldn't afford a house got thier deposit off the government or borrowed 100% of thier morgage thats when the rot started,they,like the people who borrowed up too thier eyelids have no one to blame for thier stupidity

MFAA - Industry Statistics

Australian banks have one of the lowest non-performing loans ratios of all 94 surveyed countries. Only 1.0 per cent of Australian bank loans are ‘non-performing’, meaning that only a very small proportion of loan repayments have either ceased or are excessively late. This ratio was fairly steady at 0.2% three years rising to its current figure in 2009.

This says to me that Australians are very good at repaying their loan commitments. Yes people get in to debt, but then they work their buts of to pay it back.

Those with an interest in price gouging by the Australian banks may like to have a look at this: ANZ Bank Penalty Fees Class Action moves forward. Also worth have a look at the GetUp website here: GetUp! - Action For Australia - www.getup.org.au and their very funny 'bank advert.' in particular.

Cheers
KarlB

Speaking as an investor, not a borrower, I feel the long term deposit rate paid by banks to investors should never be less than 10%. Anything less, after inflation and taxation, is stealing the use of my money. No-one forces you to borrow. You could, for instance, not buy anything until you have saved up enough to pay cash in full. The borrower is the lawful prey of the lender/investor.

Originally Posted by Brian Hjelm

Speaking as an investor, not a borrower, I feel the long term deposit rate paid by banks to investors should never be less than 10%. Anything less, after inflation and taxation, is stealing the use of my money. No-one forces you to borrow. You could, for instance, not buy anything until you have saved up enough to pay cash in full. The borrower is the lawful prey of the lender/investor.

You make a good point Brian. We are also not being told if the bank's profit is a reasonable one for their investment. Is it a 5% or a 25% return? We also need to put things into perspective and compare to other companies (eg BHP Billiton made after tax profit of over $14 billion last year). That aside, the Australian banks do price gouge by charging quite unreasonable fees, far in excess of the actual cost to the bank (eg $30 service fee for overdrawing an account by $10 when the cast to the bank of issuing the notice etc is probably less than $1). Many of the fees and charges largely target those who can least afford them.

Cheers
KarlB

Well - I think the interest rates at the moment are not unreasonable.

Luckily I am getting on a bit and have had 30 years to pay off my mortgage, but I remember when I was 20-something and was paying 18% on my mortgage for a while. I think that was thanks to Mr Keating somehow.

What are the rates now? 7% or something.....