It's time to talk to the big banks about mutual obligation.
John Howard introduced Australia to the concept of mutual obligation in the 1990s. It's a fancy theory that has underpinned conservative attacks on poor Australians for the past 20 years. The theory goes that if the Government is going to help you out when times are tough, then you owe them something back. It has spawned programs such as work-for-the-dole, the cashless welfare card and the latest thought bubble of getting the newly unemployed to piss in a cup to make sure they didn't smoke dope on the weekend.
Well, I've been thinking about this and I reckon there is something to it. But not for the poor 750,000 unemployed Australians applying for the mere 185,000 vacancies. Those guys aren't bludgers. I have someone else in mind that could do with some mutual obligation.
When I think of this group, the phrases that are so often seen in tabloid headlines seem quite apt: bludgers, leaners, free-loaders, scourge on society, shirkers living off the public teat...
The bludgers I have in mind are the big four banks who have a cosy deal with the government to be looked after by the tax-payer and yet the tax-payer doesn't get paid a cent in return for the favour.
Bear this in mind during the public debate about the bank levy. When you hear the banks screaming blue murder at the levy think carefully about what support they get from all of us and think about what they give back in return.
The big four banks in Australia only make the levels of profit they make because of taxpayer support and it's about time they start applying the principle of mutual obligation.
ANZ, CBA, NAB and Westpac all enjoy the benefit of government guarantees that other businesses could only dream of. These banks open for trade each day comfortable in the knowledge that many of the risks they take are covered by the public.
Each of the big-four are recognised locally and internationally as being too-big-to-fail (2B2F). 2B2F refers to the implicit guarantee that when the shit hits the fan at one of the big-four banks, then the taxpayer will be there to bail them out. But if it is a small bank that looks like going under, then what you would likely hear from the Government is simply, 'too bad, so sad'.
Ratings agencies are very alive to this fact and take this into account when assessing the big-four's credit risk. The RBA and the IMF have estimated that being 2B2F provides at least a 20 basis point discount on borrowing costs. A recent estimate revised this down to 17 basis points because of increased capital requirements. Either way, the proposed bank levy of 6 basis points barely covers a third of the benefit.
That's not all. All deposits under $250,000 are explicitly guaranteed with the seal of the Commonwealth. This service is free of charge. And the banks are still getting a very generous rate for the RBA to ensure the liquidity of about $200 billion worth of securities in the event of a credit crunch.
MORE ON THE BLOG:
Who benefits from ballooning household debt and the generous tax deductions that are underpinning the inflated property market? At last count, annual interest deductions made by negatively geared property investors amounted to $21 billion. That's a taxpayer funded concession that flows straight through to the balance sheet of the banks.
The big-four dominance of the financial system and the economy is most evident in the mortgage market. In the wake of the GFC, Australia's already concentrated retail banking sector got even more concentrated. St. George, Bank West, RAMS, Wizard Home Loans and Aussie Home Loans were all gobbled up by the big-four. The big-four now hold around 83 percent of home loans issued in Australia.
A large bank does not and cannot exist in an entirely free market. They do not stand entirely on their own two feet. Their supposed strength comes from the stated and unstated policies of government backing.
The big four banks in Australia only make the levels of profit they make because of taxpayer support and it's about time they start applying the principle of mutual obligation. The government levy is a good start in that direction and if the big four banks had any sense of responsibility they would stop their whingeing, pick themselves up by the bootstraps and get back to work. Bludgers.
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