http://archive.malcolmturnbull.com.auRSS feeds for Malcolm Turnbull MP60http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/78/Australian-OpEd-Well-all-pay-for-the-ALP-not-getting-a-full-reckoning.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=90&ModuleID=403&ArticleID=78http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=78&PortalID=0&TabID=90http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/78/Australian-OpEd-Well-all-pay-for-the-ALP-not-getting-a-full-reckoning.aspx KEVIN Rudd and Wayne Swan have inherited an Australian economy that has never been stronger. The federal Government is free of (Labor's) debt and is running strong budget surpluses. Unemployment is at a 35-year low, and at the same time the trend participation rate is at its highest level. In short, more Australians are able to find work now than at an point in our history. Our economy is growing at 4.3 per cent and will grow faster over the next few years than the economies of Europe, the US, Japan or New Zealand. Yet already we are seeing disturbing evidence of Labor's naivety and inexperience. Wayne Swan's performance over the recent interest rate rise has been embarrassing to watch. Ever since the sub-prime crisis started to affect wholesale borrowing costs last August, it was obvious that the cost of some of the Australian banks' funding base had risen and that they would seek to recover that cost through increasing interest rates on their loans. But by how much and when? Whereas a change in the official cash rate set by the Reserve Bank affects all the banks in the same way - like a rising tide lifts all boats - the impact of the sub-prime crisis was not uniform. The larger retail banks - Westpac, ANZ, NAB, Commonwealth, St George - had big domestic, retail deposit bases and were less affected by the events in the US. But the smaller banks and the non-bank mortgage originators were much more at risk. They had much smaller deposit bases but had been able to compete with the big banks by packaging up the mortgages they sold and selling them off to investors, including US investors: in other words, by securitising them. This enabled companies such as Aussie Home Loans, RAMS, Wizard and others to drive down the cost of mortgages. If they could outsource their balance sheet requirements to the market through securitisation, they could make money on mortgages with a lower margin because they did not have the huge cost structures of the big trading banks. The financial sector reforms introduced by the Howard government significantly increased competition in the market, driving down bank margins. So not only did the Howard government reduce pressure on interest rates by sound economic management, but its micro-economic reform of the financial services sector reduced rates further still. So it was obvious, and widely reported in the financial press, that for the big banks, the sub-prime crisis was not all bad news. In immediate terms, that part of their funding base which was dependent on the wholesale market (something less than 50 per cent) was becoming more expensive to fund as the lack of liquidity and risk aversion caused by the global credit crunch increased investors' required rates of return. At the same time, however, the capacity of their smaller rivals to compete was dramatically reduced in the short term and in all probability would remain impaired longer term. Indeed, the big five banks have seen a dramatic increase in their home loan market share ever since the sub-prime crisis materialised. Citigroup commented in September that the crisis "should ease price competition for the majors" and ABN AMRO wrote at the same time that "the recent credit crunch will develop into a structural benefit for the major banks in 2008-09". So financial analysts were predicting the credit crunch would work to the advantage of the larger banks. So, in the midst of this disruption the big banks had an opportunity to improve their competitive position and formidable profitability: in aggregate, $17.9 billion last financial year, up 10.7 per cent. A more experienced treasurer would have said to the banks: If you wish to put up your mortgage rates and claim that it is not an increase in your profit margin but, rather, a response to the sub-prime crisis, and if you want people to believe it, then you will need to demonstrate how it has affected your cost of funds. In other words, prove that the rise reflects the increase in your costs. Swan couldn't oblige the banks to do that, but if the Treasurer asks for more accountability and transparency, it is hard to resist. As soon as a bank were to say: "Over the past year or so we have funded X per cent of our loan book from the wholesale market and the cost of financing there has increased by Y per cent", it would become obvious that if those costs in the wholesale market declined, then so too should the rise in mortgage interest rates be reversed. In other words, simply asking for accountability and transparency would have set a benchmark of sorts against which interest rates could be judged in the future, and which would make it much more obvious if the increase in rates became a permanent increase in the bank's profit margin. Swan did nothing of the sort. Instead, when NAB announced a rise in its variable mortgage rate of 0.12percentage points on January 3, Swan endorsed it as reasonable and gave it his blessing without asking for any explanation. So soothing was his commendation that he appeared to be impersonating a public relations spokesman from the Australian Bankers Association. The ANZ then lifted its variable mortgage rate by 0.20 percentage points. In the meantime, Swan's unquestioning acquiescence over NAB had earned him a flaying in the media and so he did a complete backflip and denounced the ANZ's rise as "excessive". Yet he had no more reason to condemn the ANZ rate rise than he did to warmly commend the NAB's. The two banks have different businesses and different funding bases, so it may be that ANZ's was no more reasonable or unreasonable than that of NAB. Too bad Swan has no idea. Some of the Treasurer's defenders have sought to accuse me of challenging the banks' freedom to vary their interest rates or even proposing some form of new regulation. But banks are free to price their products as they wish. After all, they are in the business of making profits and, all things being equal, they will charge as much for every product they have on offer as the market will allow them. But if a bank increases its rates and the Treasurer then assures us it is a reasonable measure to recover increased costs, we are entitled to ask Swan to justify his opinion. Transparent and accountable information is essential to effective competition. Before he gave the banks his imprimatur to raise mortgage rates, Swan had a chance to promote greater transparency. But he failed to take it. And we may all end up paying more interest as a result. adminTue, 22 Jan 2008 03:02:00 GMTf1397696-738c-4295-afcd-943feb885714:78http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/154/Well-all-pay-for-ALP-not-getting-a-full-reckoning.aspx#Comments1http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=90&ModuleID=403&ArticleID=154http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=154&PortalID=0&TabID=90http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/154/Well-all-pay-for-ALP-not-getting-a-full-reckoning.aspx Kevin Rudd and Wayne Swan have inherited an Australian economy which has never been stronger. The Federal Government is free of (Labor's) debt and is running strong budget surpluses. Unemployment is at a thirty five year low - and at the same time the trend participation rate is at  its highest level ever.  In short, more Australians are able to find work now than ever before in our history. Our economy is growing at 4.3%and will grow faster over the next few years than Europe, the US, Japan or New Zealand. Yet already, we are seeing disturbing evidence of Labor's naïveté and inexperience. Wayne Swan's performance over the recent interest rate rise has been embarrassing to watch. Ever since the sub-prime crisis started to impact wholesale borrowing costs in August last year, it was obvious that the cost of some of the Australian Banks' funding base had risen and that they would seek to recover that cost through increasing interest rates on their loans. But by how much and when? Whereas a change in the official cash rate set by the Reserve Bank affects all the Banks in the same way - like a rising tide lifts all boats - the impact of the sub-prime crisis was not uniform. The larger retail Banks had big domestic, retail deposit bases and  were less affected by the events in the US. However the smaller banks and the non-bank mortgage originators were much more at risk. They had much smaller deposit bases but had been able to compete with the big banks by packaging up the mortgages they sold and selling them off to investors, including US investors  - in other words by securitising them. This enabled companies like Aussie Home Loans, RAMS, Wizard and others to drive down the cost of mortgages. If they could outsource their balance sheet requirements to the market through securitisation they could make money on mortgages with a lower margin because they did not have the huge cost structures of the big trading banks. The financial sector reforms introduced by the Howard Government significantly increased competition in the market, driving down bank margins.  So not only did the Howard government reduce pressure on interest rates by sound economic management, but its micro-economic reform of the financial services sector reduced rates further still. It was obvious therefore, and widely reported in the financial press, that for the big Banks, the sub-prime crisis was not all bad news. In immediate terms, that part of their funding base which was dependent on the wholesale market (something less than 50%) was becoming more expensive to fund as the lack of liquidity and risk aversion caused by the global credit crunch increased investors’ required rates of return.. But at the same time the capacity of their smaller rivals to compete was dramatically reduced in the short term and in all probability would remain impaired longer term. Indeed, the big 5 Banks have seen a dramatic increase in their home loan market share ever since the sub-prime crisis materialised. Citigroup commented in September that the crisis “should ease price competition for the majors” and ABNAMRO wrote at the same time “…the recent credit crunch will develop into a structural benefit for the major banks in 2008/2009.” So financial analysts were predicting the credit crunch would work to the advantage of the major banks. So, in the midst of this disruption the big Banks had an opportunity to improve their competitive position and formidable profitability – in aggregate $17.9 billion last financial year up 10.7%. So a more experienced Treasurer would have said to the Banks: If you wish to put up your mortgage rates and claim that it is not an increase in your profit margin, but rather a response to the sub-prime crisis, and if you want people to believe it, then you will need to demonstrate how it has affected your cost of funds – in other words prove that the rise reflects the increase in your costs. MrSwan couldn’t oblige the Banks to do that, but if the Treasurer asks for more accountability and transparency it is hard to resist. As soon as a Bank were to say: over the last year or so we have funded X% of our loan book from the wholesale market and the cost of financing there has increased by Y%, it would then become obvious that if those costs in the wholesale market declined then so too should the rise in mortgage interest rates be reversed. In other words, simply asking for accountability and transparency would have set a benchmark of sorts against which interest rates could be judged in the future and which would make it much more obvious if the increase in rates became a permanent increase in the Banks’ profit margin. MrSwan did nothing of the sort. Instead when NAB announced a rise in its variable mortgage rate of 0.12 percentage points on 3 January 2008MrSwan endorsed it as reasonable and gave it his blessing without asking for any explanation. He appeared to be impersonating a public relations spokesman from the Bankers’ Association so soothing was his commendation. The ANZ then lifted their variable mortgage rate by 0.20 percentage points. In the meantime Mr Swan’s unquestioning acquiescence over NAB had earned him a flaying in the media and so he did a complete backflip and denounced the ANZ’s rise  as being “excessive”. Yet he had no more reason to condemn the ANZ rate rise than he did to warmly commend the NAB’s.  The two Banks have different businesses and different funding bases so it may be that ANZ’s was no more reasonable or unreasonable than that of NAB – but WayneSwan has no idea. Some of Mr Swan’s defenders have sought to accuse me of challenging the Banks’ freedom to vary their interest rates or even proposing some form of new regulation!  Banks are free to price their products as they wish, after all they are in the business of making profits and all things being equal they will charge as much for every product they have on offer as the market will allow them. However if a Bank increases its rates and the Treasurer then assures us it is a reasonable measure to recover increased costs, we are entitled to ask Mr Swan to justify his opinion. Transparent  and accountable information is essential to effective competition. Before he gave the Banks his imprimatur to raise mortgage rates, Mr Swan had a chance to promote greater transparency but failed to take it. And we may all end up paying more adminTue, 22 Jan 2008 01:42:00 GMTf1397696-738c-4295-afcd-943feb885714:154http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/79/Wayne-Swan-must-take-a-stand-on-full-disclosure-by-Banks.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=90&ModuleID=403&ArticleID=79http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=79&PortalID=0&TabID=90http://archive.malcolmturnbull.com.au/Media/MediaReleases/tabid/90/articleType/ArticleView/articleId/79/Wayne-Swan-must-take-a-stand-on-full-disclosure-by-Banks.aspxThe Shadow Treasurer, Malcolm Turnbull, today called on Treasurer Wayne Swan to state whether he agreed with the Australian Bankers Association that no further information should be provided by the Australian Banks to the public concerning the recent rate rise. "The statement by the Australian Bankers Association cites as the main reason for the rate rises "that funding costs have increased as a result of the US sub prime lending crisis."" Mr Turnbull said "The ABA goes on to say that detailed information has been provided to "a range of interested stakeholders including the Government" but that it would be inappropriate to make that information public." "The fact is that our financial market depends on regular disclosure of commercial, price sensitive information so that the market remains informed. We now have a situation where all Banks have raised their rates, by different amounts. Each Bank has cited the sub-prime crisis as the cause, but plainly each Bank has been differently impacted; otherwise the rate rises would be, as they are after a change in the official cash rate, of the same amount." "The ABA on behalf of the Banks is now apparently saying that they feel it is appropriate to make disclosure of this information to "a range of interested stakeholders including the Government" but that such disclosure is not appropriate for either their shareholders or their borrowers - in other words the stakeholders most keenly affected, the Australian public, are the ones to be kept in the dark!" "Wayne Swan has stated that the NAB rate rise of 0.12% was reasonable and defensible but that the ANZ rate rise of 0.20% was excessive. What information did he receive from those two Banks to make those judgements?" "Mr Swan has to decide whether he is on the side of full disclosure and informed markets - if he is, then he should insist that a more detailed explanation of the reasons for the rate rise be made public." Mr Turnbull added that the ABA's reference to disclosure of product pricing methodologies was a red herring. “At this point the Banks' explanation for the rate rises has been three words: "sub prime crisis". I know, and the Banks know, that there is a great deal of non-competitive information about their costs of funds, the impact of the sub-prime crisis on wholesale borrowing costs, the reliance of Australian Banks on wholesale borrowings (as opposed to retail deposits) to support their loan books which could and should usefully be made public.” "Most importantly the more information which is made public, the better able the public will be to assess when and whether the rate rises should be reversed." [ENDS] Contact: Brad Burke - 0447 463 161adminThu, 17 Jan 2008 03:03:00 GMTf1397696-738c-4295-afcd-943feb885714:79