There was plenty of teeth gnashing this week over Westpac's "out of cycle" mortgage rate rise, including from the new PM and his equally new treasurer. It's always amazing how banks are to blame when rates rise, while the politicians of the day (ok, they last a little longer than a day, but you never know) take the credit when rates fall.
While banks are fair game when they misbehave, mislead ASIC (ok that was NAB and AMP, but same, same), charge clients fees for no service etc., what is essential is that their basic operations - i.e. the margin between their cost of funding and the rate they charge their customers - are profitable. Note we didn't say fair and reasonable!
So if their funding costs (particularly offshore) are increasing, the obvious result is that mortgage rates will rise as well. We're in a global village, and the banks' offshore funding sources - estimated to be 35% - are global as well.
Given that rates have been so low for so long, and that we've seen US rates rise (and about to do so again), there should be no surprise that eventually they will increase. There have been plenty of warnings. The problem is that while rates may be moving up, and lending practices have been tightening over the past 12 months, the banks have been falling over themselves for the previous 8-10 years to shovel credit onto the willing consumer, thereby driving up household debt to record levels, and helping to fire the furnace under residential property.
Of course consumers should shop around, but that won't help them much, simply because the other banks and lenders will follow suit sooner rather than later. And while the RBA cash rate may not shift off its current floor of 1.5% for a while, with US rates tipped to rise as soon as next month the only way from here is up.
Meanwhile back to the Hayne Royal Commission: Amidst all the drama and revelations from the HRC over the past six months, what has been amazing is the sheer volume of intelligence that the Commissioner and his Counsel seemed to have lined up to skewer some hapless witness or another.
It stands to reason that much, if not most of this would have been sourced from the regulators - ASIC and APRA, and the FOS. Which begs a question: If the regulators had the information, why weren't they able to line the naughty boys and girls up themselves?
Was it the system, the regulations, a lack of resources, a lack of intention, or what?
Hedge Clippings' most likely answer is that many in the financial services sector treat ASIC and APRA, the corporate cops, the way most motorists treat the highway patrol (until they need them). There would seem to be an attitude of "get away with what you can, when you can, and hope you don't get caught". Australians have a long history - dating back to the earliest days of the first fleet - of having a well-honed disregard for regulations and authority. Maybe it's all just a game to see how far you can go.
That's worked up until now. The HRC should lead to some miscreants facing criminal prosecutions - and the resulting time in the sin bin that may well follow!
