Banks should justify rate increases to government
Banks would lose their cover under the commonwealth-backed guarantee of deposits if they made unaccountable decisions on interest rates, a private senator’s bill proposes.
Family First senator Steve Fielding introduced legislation to the upper house on Thursday aimed at tightening controls on home loan interest rates.
Leading banks would need the treasurer’s approval if they wanted to withhold a rate cut or increase rates beyond Reserve Bank adjustments.
Should a bank’s reasoning not sway the treasurer and the bank insist on moving interest rates, it would lose access to the deposit guarantee scheme.
“Banks need to understand that government assistance comes with responsibility,” Senator Fielding said in his speech introducing the bill.
At present banks have access to the government guarantee on all money deposited into their accounts, enabling them to lower their borrowing costs and keep their profit margins stable.
The guarantee had helped the four major banks increase their market share of home loans from 57 per cent to 72 per cent.
Similar regulations were already in place for health insurers, which are required to seek government approval for premium increases.
Senator Fielding expects a Senate inquiry to consider his bill, saying it was “a huge issue”.
“When the banks start jacking up interest rates with really no justification it is a huge concern,” he said.
Senator Fielding conceded regulation of banks was a touchy issue.
“The question is how far and that’s why a Senate inquiry will help us work it out to get the level right,” he said.
AAP
Loading ...
Howard June 26, 2009
Yeah, this is just what we need. More government interference to encourage more debt. That worked out so well overseas with Fannie Mae and Freddie Mac, didn’t it?
The truth is the cost of debt is going up, due to both (i) higher levels of default risk and (ii) the price of risk is returning to sane levels after it risk was underpriced far too low over the last decade.