Banks are bastards…

Wednesday, June 10th 2009, 2:07PM

Well I think that is what MPs are saying in this report yesterday. Let’s have a look at this argument that these big Australian banks are creaming profits at the expense of Kiwis because they haven’t passed on all the recent OCR cuts.

Our graph here shows clearly that bank margins on floating rates have increased as the OCR has come down. Does that mean they are profiteering?

We don’t know and nor do the politicians. These big banks are complex businesses and sometimes it is dangerous to look at one set of numbers in isolation.

It is not up to politicians to tell banks where they should be setting their interest rates. If that is what they think they should be doing then make some regulations and tell the bankers how to run their businesses.

I thought, no matter whether it is a National-led or Labour-led government, that we had a free market in this country? Likewise I don’t recall the politicians stepping in when the mortgage price war was going on saying that rates were too low and they were worried banks were losing money.

MPs are as impotent as the Reserve Bank is at forcing change to retail interest rates.

Tomorrow with the OCR announcement we will see what the Reserve Bank governor Alan Bollard has to say about the situation. My feeling is that he isn’t that worried about home loans rates and what is going on in that market. The housing market is bubbling along OK, prices seem to have plateaued out and there is sufficient activity to keep the sector healthy.

It isn’t likely to burst into any great boom at the moment as the fundamentals just aren’t right.

The much bigger issue for the Reserve Bank and the economy is what’s happening with the currency and how that is severely hurting our export sector.

Taking this as the key issue then the central bank has little choice but to cut the OCR at least 25 points. Such a cut won’t be primarily designed to bring home loan rates down.

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