On June 15, the Commonwealth Bank of Australia (CBA) raised the rate of its standard variable mortgage by 0.1%. For home buyers with the typical $300,000 mortgage, this means repayments go up by $18 a month.
Westpac and the National Australia Bank (NAB) both followed with rises to their fixed-rate home loans on June 16.
The small size of the rises shows something more fundamental, however. The largest four banks issued 92.4% of the home loans written in March, the May 13 Sydney Morning Herald said. They dominate the home-lending market. They are free to increase their fees and charges paid by working people at will.
The difference between the interest rate levied by the most expensive of the big four (Westpac at 5.81%) is only 0.07% higher than the lowest (the CBA on 5.74%). The "choice" offered to home buyers by this "competition" is worth just $12 a month.
The CBA justified its decision to increase its home loan interest rate with a sob-story. "We fully understand that any increase in interest rates impacts on our customers and for that reason, have continued to absorb as much of the additional funding costs as long as we could", the CBA's Ross McEwan said on June 12.
McEwan went on to blame the increased costs of international credit markets for the bank's decision.
However, the CBA, along with the other big banks, benefits from the federal government's banking guarantee.
Since October, all foreign borrowing by banks and credit unions is guaranteed by the Australian taxpayer. This guarantees the banks can fund their loans, including home loans.
The government's leg-up to banks comes with a fee — but only a small one — "similar to an insurance premium", PM Kevin Rudd said.
The fee charged to the banks by the government (and the interest rate at which they can secure loans) is much lower than for smaller institutions. And yet the banks still cry poor.
Despite the ravages of the global economic crisis, Australia's largest banks remain very profitable.
On April 27, the National Australia Bank posted a half-yearly profit of $2 billion. Although down 10% on the previous six months, few would argue that a yearly profit of $4 billion was small.
ANZ reported half-yearly profits of $1.42 billion on April 29. Westpac reported a half yearly profit of $2.175 billion on May 6. The CBA said its half yearly profits to December 31 were $2.013 billion.
Collectively, the "big four" banks took a profit of over $7.6 billion dollars — in six months. Is this a sign of a banking system struggling to make a buck?
Regulate or nationalise?
On June 16, South Australian independent senator Nick Xenophon called on the Rudd government to regulate the banks more tightly.
Xenophon advanced a four-point plan: review the tax-payer guarantee on wholesale funding; limit bankers' salaries to $1 million a year; legislate to limit bank fees; and limit the maximum credit card interest rate to 5% above the bank's standard variable rate.
The Rudd government has rejected Xenophon's call. And indeed, the government has little power to meet many of these demands while they accept the right of private, profit-driven banks, to maximise returns to shareholders above all else.
However, the government is not powerless. If the "big four" are too important to the economy to allow them to fail, why not put them in public hands?
Between 1911 and 1991, the CBA was a publicly owned bank. As a first step, the government should take the CBA back.
While millions of people rely on the banking system to provide an essential service, the purpose of private banks is to make profits.
The logical response is to remove profit-making from the equation. A real solution would be to nationalise the banking industry and merge all banks into a single, publicly controlled bank. It could be chartered to provide essential banking services to the entire community to meet human needs, not corporate profits.