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Over the past few weeks the majors have come under increasing attack for publicly indicating their intentions to raise interest rates out of cycle with the Reserve Bank.
Jessica Darnbrough
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Fears are mounting that some of the majors are colluding to ramp up their mortgage rates under the guise of higher funding costs despite their surging profits.
Borrowers are understandably angry.
The cash rate has soared by 1.5 per cent in just 13 months since its low of 3 per cent back in October 2009.
ACCC chairman Graeme Samuel recently warned the banks that signalling their intentions to raise rates could be considered anticompetitive.
And last month opposition treasury spokesman Joe Hockey also weighed into the debate calling for closer regulation of the banks on the back of the threat of rate rises.
In the October Board minutes, the RBA noted that banking funding costs had been relatively flat over recent months, adding to the suspicion of smoke and mirrors from the big banks.
So who are we to believe? Are the banks truly at the mercy of soaring funding costs and are merely looking to keep step with their costs or is there a conspiracy to fatten their margins?
There is no doubt that the costs of funds remain well above pre-global financial crisis levels.
According to ANZ data in October, offshore wholesale funding costs remain at 160 basis points above their pre-crisis levels.
Most of the majors have also increased their savings rates by up to 2 per cent in a bid to raise deposits.
If the big banks are indeed exaggerating their plight and there is no real funding crisis they are likely to cannibalise their market share.
Second-tier lenders and the non-banks are already showing a strong return to the market.
Imagine the impact should the majors raise rates out of step with the rest of the market. The political and public backlash would be immense.
It seems inconceivable that the majors would want to see their dominance shift at a time that they have regained all the ground lost since the early 90s.
And with brokers now controlling in excess of 40 per cent of new business there could be significantly more damage to major bank market share than there was a couple of decades ago.
It now looks likely that the majors will lift rates out of cycle before the end of the year. What will be interesting is to see if other lenders follow suit.
