Posted by John, November 7th, 2010 - under Monopoly, Oligopoly.

Tags: Banks, Competition

I know it may surprise you, but our dear sweet banks aren’t telling us the whole truth when it comes to home loan rate rises.

The Commonwealth Bank increased home loan rates 45 points, 20 points above the Reserve Bank increase of 25 points. The head of the bank, Ralph Norris, argued that borrowing costs had gone up and so justified this increase.

He also said that in the last few years their mortgage borrowing costs had gone up 1.35 percentage points above th RBA cash rate, but they have been able to recoup only 1.04 percentage points.

The reality is more complex. The truth is out there. Actually it’s on the Reserve Bank website.

What Ralph didn’t mention, but what the RBA figures show, is that since 2004 the net interest margins of the banks have oscillated in a fairly narrow range between 2.25 and 2.50 percentage points.

In fact the RBA figures show that the banks in Australia have recouped the increase in funding costs caused by the Global Financial Crisis and the gap is actually a little higher than before the GFC.

Where the banks have really made their money is on credit card debt, personal loans and loans to small business. The net interest rate margins on these three areas ahs ballooned massively in favour of the banks.

Something else happened during the GFC in Australia. Competitors to the 4 major banks dropped out almost completely of the home lending business. The 4 majors’ share of the home loan market went up from around 60 percent to almost 80 percent.

So now they are trying to gouge more money out of home borrowers just as they are gouging more money out of credit card debtors, personal loan holders and small businesses.

This has the Opposition, and now the Government, bleating about more competition being the answer. This won’t address the structural reasons for Australia’s higher interest rates – the minerals boom, which a resource super profits tax might have slowed down a bit, the wider ongoing economic recovery tied to Chinese and other nations desperate for our minerals, the shortage of skilled workers, the increased demand for high paid workers in the mining industry and the like.

Indeed, the idea that competition is the saviour fundamentally misunderstand later day capitalism. Competition leads to monopoly, or int eh case of the big 4 banks in Australia, oligopoly. It is th logic of competition to produce more and more concentrations of capital.

There can be no turning back the clock on this. No matter what the Australian Government does the end result of the capital accumulation process in Australia will be fewer banks.

In the meantime Australian banks are taking us for a ride and cutting our living standards. The obvious response? Industrial action to restore our real wages. What about a super profits tax on the banks? Then let’s consider nationalising the banks under workers’ control. Any chance anything will happen under this Labor Government and its lapdogs at the Australian Council of Trade Unions? None, zero, zilch.

Only we rank and file unionists can address the erosion of our living standards that mortgage rate rises produce. Strike for real pay increases.