A day in the life

Here’s a comment I just posted on the Greens Facebook page as I don’t agree with their populist approach to bashing the banks.

Some key points to consider about the so called “unreasonable profits” being made by the large banks.

1. If banks are making exorbitant profits go to a credit union. Can’t get a better rate at a credit union? Then the problem is getting access to cheaper money, not bank profits.
2. 8.5m Australians have superannuation, pretty much all of those will have shares in Australian banks, so any profits are being distributed to Australians to some degree.
3. More Australians have high interest deposit accounts than mortgages, so higher interest rates help more Australians and also help promote a better savings culture - something Australia is severely lacking.
4. Banks return on equity (standardised measure of profit) is around 12% — certainly not exorbitant and around the minimum of what an investor would expect as a reasonable return for their investment.
5. Some people say “Australia should have a bank run by the govt.” — we did, it is now Commonwealth Bank. It was privatised and now we have a very competitive banking sector based on the 4 pillars bank policy and various credit unions / building societies.
6. Some people say “Bank profits have risen by exorbitant amounts!”. Actually, they have risen because the banks took such a big hit with the GFC so are being compared to abnormally low profits. The most recent profits are more in line with historical norms.
7. Unlike the United States, the Australian government didn’t have to bail out 100 banks that failed, rather we have a strong banking and regulatory system that stood up to the GFC test. One critical component of that is ensuring that the banks make a profit and do so in a sustainable manner.

Unfortunately most Australians (and it seems politicians too) aren’t very financially literate and don’t understand the relationship between interest rates, the RBA, the govt. and banks.