Finance News: 08 Mar 2010
The Australia Institute has picked the week of another increase in mortgage rates to launch what it claims to be a comprehensive history of the price gouging habits of the big four banks...
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While the global financial crisis saw big banks around the world fall over, the current study says the crisis has proved to be a bonanza for Australia's main banks.
Not only have they been able to take over 90 per cent of the lending market, but as the downturn passes their profits will rise exponentially.
The National Australia Bank, the ANZ, the Commonwealth Bank and Westpac were able to turn billion dollar profits.
Senior researcher with the Australia Institute David Richardson says he has been following bank behaviour since the 1980s.
He is convinced the banks are not only too profitable but their excess profits are being made at the expense of the Australian community.
"At the moment the banks are making underlying profits of around $35 billion per annum in Australia, the equivalent of 3 per cent of GDP," Mr Richardson said.
"We estimate that around $20 billion of that is the additional profits they obtain through the exploitation of market power in Australia."
Mr Richardson says the major banks had control of about 50 per cent of the market in the 1980s.
Now the big four control 90 per cent of the home lending market.
He says with increased market share comes increased power and exponential growth in profits.
However, he says the government can control the profiteering.
"What should governments be doing to counteract the market power that banks are exploiting?" Mr Richardson asked.
"I would point to things like the Reserve Bank activities in controlling some of these fees the banks charge each other, which are passed on to customers as a result of credit card transactions.
"We've seen hints of what you can do through the regulation of bank fees and charges."
Social benefits
The Australian Bankers' Association (ABA) denies the tenor of the report.
The ABA's David Bell says it portrays banks as being the bad guys.
"We think this is a very disappointing interpretation of the important role that Australia's banks played during the global financial crisis," he said.
"In fact it completely ignores the social benefits of successful banks.
"If we look overseas where we've had economies in recession, they've been marked by banks which have had difficulties and have failed.
"In Australia we've had a very successful banking system right throughout the global financial crisis and that has helped us continue to lend, pay our taxes, contribute to superannuation and continue to employ people."
Mr Bell disagrees that profits will rise exponentially now the big four banks own 90 per cent of the market.
"In fact what has happened during the global financial crisis is that we've had a massive hit to the world financial system," he said.
"Australia's banks have survived that.
"More than that they've done very well, which means that we've been doing the right thing in terms of lending all the way along."
The Finance Sector Union (FSU), which represents bank workers, agrees with the report's basic arguments.
The FSU's Leon Carter says the major banks in Australia have received a lot of government support but they have failed to recognise their social obligations.
"They are an incredibly important part of this country's economy, but the important thing to remember is that they actually profit from that community," Mr Carter said.
"So yes they help grease the wheels that allow us to buy houses and cars and live the lives that we do, but it's really important they not profit from our community at the expense of the customers and their workforce."
Mr Carter says he does not think the banks' profits should be capped.
"What we've got to change in this country is the fixation with [the idea that] the only group in our community that banks have to make a profit for are their shareholders," he said.
"The only thing that will make the big four behave differently is better, stronger regulation that improves the lives of workers and the customers."
Federal Treasurer Wayne Swan has been contacted for comment.
SOURCE: ABC News
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