I watched Glenn Stevens at the Senate Inquiry into bank competition this morning. He was asked several times in various guises as to whether the banks were justified in raising their rates more than the RBA rate in November. Senator Fielding even asked him if Australians should feel ‘ripped off’. Stevens correctly answered that he was in no position to comment on how people should feel.
I thought he handled the issue quite well. Clearly he doesn’t want to second guess the pricing decisions made by the various banks and he kept pointing to the fact that funding costs for banks have risen and that mortgage rates are more or less where the RBA thinks appropriate.
If prices are about right that probably means bank customers are not being ripped off.
Both parties – well, all politicians – are not acting very honestly over this. Climbing onto populist issues like this shows that they don’t respect the electorate enough to tell them the truth.
ken n
13 Dec 10 at 1:19 pm
It was great to see Stevens express scepticism about whether taxpayers should take on more risk “one way or another, in order to facilitate the provision of private finance”.
This looks like a veiled way of saying that proposals for taxpayer backing of AAA-rated RMBS – pushed by people like Chris Joye to help non-bank lenders – is not necessarily the right thing to do.
Sleetmute
13 Dec 10 at 1:30 pm
Anyway, just how does one determine that a price is a rip-off?
pedro
13 Dec 10 at 2:37 pm
Everyone has the right to feel ripped off.
It’s a free country, at least with respect to private emotional responses.
FDB
13 Dec 10 at 2:42 pm
True FDB
pedro
13 Dec 10 at 2:59 pm
OK FDB, if it is a private and personal emotion, it cannot be the basis of any government action.
ken n
13 Dec 10 at 3:13 pm
i feel ripped off by them. I have numerous accounts under “one family” so the bank knows if I have money or not. Yes I understand the legalities. However a 500 buck overdraft can end up costing me 35 bucks and other fees if I miss a deposit date. It’s like the bastards are waiting there ready to ring the cash register without hesitation.
They’re a hateful business. However do I want to government to intervene on my behalf…? no siree.
JC
13 Dec 10 at 3:17 pm
I was being flippantly dismissive ken n.
Despite having problems with my own mortgage at the moment for various reasons, I am not a bank-basher.
I’d always prefer bank (or corporation) bashing to refugee/dole bludger bashing, but none is a good basis for policy, and all (esp when so simplistic that even Steve Fucking Fielding weighs confidently in) degrade public discourse.
FDB
13 Dec 10 at 3:18 pm
The thing I hate about banks are the double standards when they fuck up. That is all.
.
13 Dec 10 at 3:19 pm
Oh yeah – except the overdraft penalties and transaction fees. They should be calculated as prices normally are – on a cost plus margin basis. Clearly there is some arbitrary pricing going on, which ought to be fixed.
Not sure how.
FDB
13 Dec 10 at 3:20 pm
Interest rates aren’t the rip-off as much as fees. Sneezing within 500 metres of a banks seems to accrue charges these days. It’s not as if the quality of service has improved commensurately with increases in charges.
THR
13 Dec 10 at 3:21 pm
I don’t think it is arbitrary, just a range of different theories of what it costs them or how severely they ought to discourage/profit from tardy payments or breaching a credit limit.
Some are probably more rational than others. I’d rather not have a rule for it in case the rule is wrong.
.
13 Dec 10 at 3:22 pm
“It’s not as if the quality of service has improved commensurately with increases in charges.”
I reckon it has though, but not perhaps in a way you care about. Multiservice clients are much better off.
.
13 Dec 10 at 3:25 pm
What has forced banks to introduce fees for services is that they were forced – by competition originally from cash management trusts – to offer reasonable deposit rates.
When interest on savings accounts was fixed at around 3% there was scope for a great amount of cross subsidization.
I’d rather get a reasonable rate on my deposits and pay fees when I need services. It also doesn’t bother me to pay $2 if I am lazy enough not to walk to my own bank’s ATM.
ken n
13 Dec 10 at 3:42 pm
“I’d rather not have a rule for it in case the rule is wrong.”
Rinse, repeat.
…
Libertarianism!
FDB
13 Dec 10 at 3:53 pm
“I’d rather have the rule for it in case the rule is wrong.”
That’s more silly.
.
13 Dec 10 at 4:19 pm
“I’d rather find a good rule”
Less silly?
FDB
13 Dec 10 at 4:22 pm
You want to regulate overdraft prices? You know the best method for doing this?
Why don’t you own a bank?
.
13 Dec 10 at 4:29 pm
FDB
You understand that it isn’t as easy as you think, Constable.
Do you know what their loss rate is? Cost of of potential recovery is a loss situation. Standing there grandstanding makes you appear like an idiot.
It’s not as easy as you think.
JC
13 Dec 10 at 4:32 pm
Hmm. What is the validity of a “cost plus margin basis” for determining if a price is fair?
I could understand if the vendor thought it was important to have a margin over their costs, but why would that be relevant to the purchaser? Shouldn’t the market rate, regardless of the margin, be the price?
Why is the gross margin of Dell compared with Apple vastly different? (Oh, OK, I can answer that: build quality, cool factor and overall RDF).
And in reverse, I have yet to find a purchaser complain when the price is less than the cost to the vendor.
entropy
13 Dec 10 at 4:59 pm
Ah, the sound of a rent seeker in the morning
ken n
13 Dec 10 at 6:00 pm
I’m not going to advertise, but I haven’t paid a single fee to my current bank in the three years I have been with them. The bank I was with before on the other hand was atrocious with hidden fees and charges. Yes it was a small hassle to change banks, but no more than an afternoons work (if that) of filling out forms and lining up for the i.d check etc. Well worth it in the long run.
A lot of people seem to enjoy complaining about their bank, but when it comes to actually doing something about they suddenly have better things to do.
rebel with cause
13 Dec 10 at 6:02 pm
If the overdraft fee bore some relation to the size of the overdraft, that would be an obvious start.
If any additional penalty were justified in terms of the actual cost to the bank of pursuing and correcting the overdraft, that would also be sensible.
If they tacked a little profit onto that, I wouldn’t object.
If it were waived entirely for people on tiny incomes who spend down to the bottom of their savings each and every pay period, but are always good for the shortfall when the next cheque comes in, that would be very unlikely and not very profitable, but really nice and not that harmful to the banks’ bottom line.
These people (eg me) don’t have JC’s $500 overdraft – they’re slugged every time their account goes below zero credit.
Can anyone give me a really coherent argument from principle (not on the basis of the contract I signed and knew the terms of) why I shouldn’t be credited the amount of my fine for going in the red as soon as I’m back in the black?
FDB
13 Dec 10 at 6:15 pm
Bah, why should banks have to “justify” what they charge anyway? They are private businesses, not charities. People who think a bank ought to be run on fairydust and sunshine should open up shop. When they give an inch, unscrupulous customers will take the mile and sunshine will suddenly be in short supply.
rebel with cause
13 Dec 10 at 6:47 pm
rwc – the reason is that banks and their fees tend to follow what could charitably be called similar, or cynically be called cartel-like, behaviour.
Do you think nobody should ever have to justify their prices?
FDB
13 Dec 10 at 6:56 pm
They’re pricks. I have no love for them. They’re dumb organizations and basically rip of the customer.
However I don’t want the government to interfere. They will eventually get their comeuppance, as some Paypal system will come through that devastates those fuckers..
And like FDB, I’ve been hit with 35 buck o/d fees for accounts that are 50 bucks in od. They once wanted to charge me od because their fee sent one account into od.
They’re pricks I despise them, but I still don’t want them touched with silly regulations.
JC
13 Dec 10 at 7:00 pm
JC – my bank recently sent me a letter proudly proclaiming how awesome they were for not allowing their account-keeping or transaction fees to trigger their overdraft fee.
You can imagine the tenor of my reply.
FDB
13 Dec 10 at 7:17 pm
FDB, competition is the only thing that will effectively hold banks to account for their prices. If there are barriers to entry to the banking game then lets get rid of them. What method do you propose to hold banks to account for their prices?
rebel with cause
13 Dec 10 at 7:20 pm
FDB – they don’t price like cartels. End of story.
.
13 Dec 10 at 7:20 pm
Dot – okay then. For whatever reason, they charge tens of dollars for going cents into the red, in a largely eletronic and instantaneous industry.
How would you describe their pricing?
Cartel-like seems kind to me.
FDB
13 Dec 10 at 7:22 pm
Is it merely predatory?
FDB
13 Dec 10 at 7:23 pm
Before you jump on that, I was just going wioth the alliterative flow. I don’t mean they were pricing to run down competitors.
FDB
13 Dec 10 at 7:24 pm
No proof of that either.
.
13 Dec 10 at 7:26 pm
No proof of that either.
Come on Dot, you’re relying on formalism to deny the obvious.
This is what used to happen in banks during the 70′s.
The cheques would arrive in the morning, the ledger examiner would look at all the cheques, hopefully spotting dodgy signatures, post dated checks. Any overdrafts were taken to the manager who would decide whether or not to bounce the cheque. Lots of work, lots of time, individual decisions.
Now. You are overdrawn, subroutine issues debit, now you’re more overdrawn and pissed off.
It now should cost much much less to process an overdraft. If banks now must charge so much to process an overdrawn account then they are admitting to being absolutely fucking hopeless at administration.
John H.
13 Dec 10 at 7:50 pm
“If banks now must charge so much to process an overdrawn account then they are admitting to being absolutely fucking hopeless at administration.”
I thought they were. I’ve never sent a letter to a dead person!
Processing an overdraft and discouraging them are two different things. Would we be satisifed if a bank had credit problems/illiquidity if it was too relaxed with overdrafts?
It is the arbitrary nature which pisses most of us off. Not quite with me. Double standards – you fuck up, you pay – they fuck up – too bad.
.
13 Dec 10 at 7:54 pm
We have an example of what happens with a law to prevent what people consider onerous od fees and credit card rates.
The Frank Dodd law in the US forced banks to give up their od and pushed not to charge what was thought to be high rates on credit cards.
The result is that the banks have turfed out their riskiest clients leving them without bank accounts and because of their credit history are unable to open an account elswhere.
That’s why libertarians keep repeating the law of unintended consequences. It’s real.
JC
13 Dec 10 at 8:05 pm
Precisely.
FDB
13 Dec 10 at 8:15 pm
The banks are all publicly listed companies. It’s not like we have the Illuminati running the show. If you think the profits are so great, go and buy bank shares. Chances are that is what your superfund has been doing anyway.
rebel with cause
13 Dec 10 at 8:16 pm
“The Frank Dodd law in the US forced banks to give up their od and pushed not to charge what was thought to be high rates on credit cards.”
So… which of those two things was more at fault?
FDB
13 Dec 10 at 8:18 pm
Ah, the eternally brilliant argument – if you can’t fix it, it ain’t broke.
FDB
13 Dec 10 at 8:23 pm
How do you mean? You mean which was considered worst?
I’d say credit card. But the thing is that the banks simply cut credit to people they thought were too risky as the higher rates compensated them for the lass. Now a lot of Americans, the poor obviously, are living without a bank account or credit card.
Laws in parliament don’t refute the laws in economics.
JC
13 Dec 10 at 8:33 pm
“If the overdraft fee bore some relation to the size of the overdraft, that would be an obvious start.”
Typical FDB, there was an agreement in place, your now unhappy the terms and you want to move the goalposts. You chose to use the overdraft service yet want others to subsidise your choices. Piss off and take your price controls with you to your Utopia.
DavidJ
13 Dec 10 at 8:33 pm
No, its the wrong extension.. it’s really… don’t try to fix it because you’ll invariably fuck it up.
JC
13 Dec 10 at 8:34 pm
Look, I hate bank fees as much as anyone. But our national sport of whingeing about fees is an international disgrace. Dude, you know who you bank with, only go to their ATMs. Dude, you know how often you get paid, don’t use the ATM more than 10 times during that period. God knows what all these bed-wetters would have done way back when they received their pay in CASH, and had to endure the indignity of putting their money in their wallet for the month!
Peter Patton
13 Dec 10 at 8:37 pm
What is your point FDB? I said if you think the profits are so great, buy some bank shares. Personally, banking is the last business I want run on a razor thin margin. There is a reason why the margins are fat and it has nothing to do with cartel behaviour (which you have absolutely zero evidence for).
If things go bad at the bank the last thing I want to hear is that my account has been vaporised because the bank didn’t have sufficient cash reserves. You probably won’t care much about losing the two dollars sitting in your bank account but I would be mightily pissed off to lose the thousands sitting in mine.
rebel with cause
13 Dec 10 at 8:38 pm
VAPORISED!!!?!!ONE!!
Unbunch your panties.
It’s never going to happen because our banking industry is pretty well-regulated, with the exception of slugging folks like me tens of dollars for a few cents’ overdraft, which only helps the bank service your occasional lobster requirements.
FDB
13 Dec 10 at 8:49 pm
I don’t think that bank fees should be regulated because their profits are large. I think it for the reasons I have talked about.
Why not discuss them before we get onto your fevered imaginings?
FDB
13 Dec 10 at 8:51 pm
Yes, you want more regulation of banks because overdraft fees hurt your feelings (oh, it is so unfair! Why won’t Big Wayne stop these bullies?!?) Suck it up champ.
rebel with cause
13 Dec 10 at 9:02 pm
No, because the fees charged are incommensurate with the scale of the overdraft.
I should clarify that I don’t want MY account changed (after all, I signed the contract)… I want future account contracts (ideally including mine) to be fairer.
I have zero confidence that Wayne or anyone will actually do this – I’m just talking in theory.
FDB
13 Dec 10 at 9:08 pm
Haven’t paid any fees for years, as we have a home loan and use bank atm or eftpos. credit card is free too, and paid monthly
only fee we pay is to get 0.6% discount on loan plus lower fees for new loans etc.
Banks are facing class actions over penalties and rightly so – a penalty is a special type of charge and must not be over actual cost.
fees for services can be profit based, so who cares? no-one holds a gun to you to sign up an account.
too much nannying in this world for dumbarses
like tonight on ACA some old lady was too slow and missed out on one of 60 hampers, and bailed up the “journo” to whinge. As did another female.
pete m
13 Dec 10 at 9:25 pm
Sounds like a nice dream FDB. More original than “world peace” anyway.
rebel with cause
13 Dec 10 at 9:28 pm
RWC – do you think it’s okay for an overdrawn savings account to attract a massively higher penalty rate than an overdrawn credit account?
If so, why?
[NOTE: "Cos that's how it is" doesn't constitute an argument]
FDB
13 Dec 10 at 9:36 pm
FDB I don’t run a bank. I have no idea what constitutes a fair charge, and I daresay neither do you.
My GP charges $60 dollars in 15 minute blocks. If I have to go to him for a diagnosis or script I usually spend about 5 minutes, tops in his office but still get charged for the full 15. Is that “fair”? Why don’t I only get charged a third? Did my GP think at all about what incentives billing in 15 minute periods creates?
My point is that in a market system, there will be all sorts of pricing decisions that may strike outsiders as odd, or even unfair. Hell, even the GP or the bank manager might wonder why prices are the way they are because they are just pricing by conventions they don’t themselves understand. Such conventions arise and persist because they are profit maximising, and firms that deviate from them go out of business (so everyone therefore follows the convention).
“Cos that’s how it is” might not constitute an argument in your book, but in mine it is. High penalty rates are, as far as I know, profit maximising behaviour for banks in the current state of nature. I have no moral objection to profit so if that is the way it is, then so be it.
rebel with cause
13 Dec 10 at 10:06 pm
TBTF = Moral Hazard = Taxpayer guarantee.
The moment my tax dollars are (even implicitly) guaranteeing the banks I deserve to know what they’re doing with my guarantee. So I can at least lobby Canberra to withdraw the guarantee if the banks are being boofheads.
I have no objection to banks earning. I have no objection to oligopoly. But I hate it that I’m guaranteeing a loan book and I have no idea – on the record – of what’s in it.
PSC
13 Dec 10 at 10:12 pm
RWC – You’re apparently very comfortable with assuming that others know better than you, even when faced with a clear question like the above savings-vs-credit-account one.
I hope you understand that as a result I don’t want to talk with you about bank fees any more.
Rebel indeed.
FDB
13 Dec 10 at 10:13 pm
It’s never going to happen because our banking industry is pretty well-regulated
There but for the grace of god …
Just because it is well regulated today does not mean it will be well regulated tomorrow.
The only bigger hotbed of incompetence than large corporates (e.g. major banks) is government.
PSC
13 Dec 10 at 10:21 pm
What is your grand plan then FDB? Short of wishing the fees away that is.
rebel with cause
13 Dec 10 at 10:22 pm
Regulation is supposed to be a panacea? This idea suggests remarkably hubris.
US banks were the most regulated in the world and they still failed.
If I had to bet where our own crash will occur then watch the housing market and the bullshit going on with these so-called covered bonds. It’s the same sort of intervention as in the the US with Fannie and Fred.
JC
13 Dec 10 at 10:25 pm
And for the record FDB, I rebel against dickheads who think they know best for me and mine. I’m not going to posit armchair theories on the “fair” level of bank fees just to impress you.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Hayek
rebel with cause
13 Dec 10 at 10:29 pm
“What is your grand plan then FDB? Short of wishing the fees away that is.”
I don’t claim any special expertise, but I’m glad you’ve moved past just being silly about it.
I’ve often wondered why savings and credit accounts couldn’t be treated identically – when you’re in credit, you recieve interest, and when you’re in debit, you are charged interest.
Before you respond that I should open a bank (as people often do when someone suggests something they don’t have any decent argument against), do you have a decent argument against what I’ve suggested?
FDB
13 Dec 10 at 10:32 pm
FDB: My everyday account works
like that. Next!
rebel with cause
13 Dec 10 at 10:35 pm
FDB: My everyday account works exactly like that. Next!
(no quote necessary!)
rebel with cause
13 Dec 10 at 10:36 pm
My local Bendigo community bank manager personally vets every account going into overdraft every morning. And generally rings the client to tell them and usually waives any fees that would otherwise be imposed. And there are few if any fees on ordinary accounts.
Bendigo has a higher cost structure (and therefore lower profitability per dollar of banking business) then other banks because they maintain old fashioned service like this. But the customers seem to like it. Of course, other people would rather just whinge about how their bank sucks, which is fine.
As long as the government doesn’t get in and fuck up the market because of the whinging….
Tim Quilty
13 Dec 10 at 11:52 pm
My local Bendigo community bank manager [ is god's gift ]…
It’s an image they sell very hard. But have a looksee at the board and senior management. Most ex. ADB.
They are savvy buggers though. Really interesting to note that they’ve expanded aggressively and somehow not loaned squillions to dodgy Queensland property developers.
PSC
14 Dec 10 at 12:19 am
It was one of my favorite shorts in the GFC. I only got out too quickly because I thought the RBA would forced them to sell themselves to a larger bank as they really were fucked up on the fucking side.
JC
14 Dec 10 at 12:21 am
oopss… on the funding side.
JC
14 Dec 10 at 12:22 am
Sounds vaguely wonderful! Where do I possibly sign?
This ostensible account sounds like just my cup of purported tea!
FDB
14 Dec 10 at 12:23 am
FDB,
Bendigo are like that – I had a mortgage with them for quite a while before we moved it to another bank – and not because we had any desire to leave them.
Having looked at this for one of the banks in some depth a while back, the penalty fees that are charged have very little to do with the actual cost or risk of the transactions and, in my opinion, are at least in part unjustifiable on any reasonable grounds.
The penalty fees seem to just be pitched at the rate they believe they can get away with.
Andrew Reynolds
14 Dec 10 at 12:58 am
FDB
I don’t get what you mean wanting an account like the one you described. You can attach an overdraft facility on a regular chequing account anytime. you’re not exactly inventing the wheel here dude as banks have provided such a faculties since I was a kid and beyond.
JC
14 Dec 10 at 1:01 am
Henry Ergas agrees that government investment in AAA-rated RMBS is no good thing:
Sleetmute
14 Dec 10 at 7:02 am
Yeah. This is the government creating our very own Fanny/Freddy problem. It will blow up down the track.
Well, I should say that I am on the board of out local community bank company. Bendigo actually does very nicely out of the community banking franchises, getting a branch structure rolled out at quite low cost to them. Their capital isn’t tied up in lots of relatively low profit branches. Eventually, as the community branches ramp up the profit, they miss a bit of the profits they might have had, but I reckon they are still ahead on the deal.
The local company pays all the staffing and premises costs, and Bendigo is responsible for managing the money. The profits are split 50/50.
Oh, and 80% of the community banks profit goes back into community projects. My local branch is now putting about $300,000 back into my little country town annually. And growing. (Plus $60,000 in divs to the people of the town who put up the share capital to get the company started). We’re getting a heated swimming pool built, and then we’re going to build an aged-care facility.
Tim Quilty
14 Dec 10 at 7:53 am
I don’t get why FDB agrees that overdraft pricing has at least three elements and then complains about high overdrafts once more, inferring that there is only one part to this…
.
14 Dec 10 at 9:27 am
Sheesh, there’s a lot of emotion in the posts above. I detect a misalignment between people’s expectations of banks and the reality of their performance. But is this a function of the performance or of unrealistic expectations?
Personally, I never pay bank fees. But then, I never have an overdraft either.
My take is that if you don’t like your bank, change your bank. If you don’t like any banks, keep your money under the mattress and pay cash for everything. It’s a (relatively) free country. Nobody has to put up with bank fees. If you do, it must mean that the bank is offering something that you value more highly than the cost of the fees.
Mother Hubbard's Dog
14 Dec 10 at 10:52 am
I’m very happy with the pricing of my banking services.
Personally I’m wondering when the government is going to do something about the price of beer, taxis and tradesmen.
My Bank fees are about $40 per year. OTOH if I want to get a plumber around to fix a leaky tap it will cost me around $250.
Yobbo
14 Dec 10 at 3:51 pm