11-November-2010
Portfolio Media Releases, The Economy
Topics: Interest rate rises, banking competition
E&OE
MARIUS BENSON:
Andrew Robb, the Government has condemned the interest rate rises from the banks and the Opposition has condemned the Government and the interest rate rises but it’s two down and two banks to go – that seems inevitable.
ANDREW ROBB:
Well I think there is some sense of inevitability and it stems largely from the disappearance of competition in the banking sector over the last couple of years.
The botched approach by the Government to the introduction of the guarantees over the last 18 months for the banking sector led to the disappearance of 25 years of competition. We are now paying the price for that.
MARIUS BENSON:
You blame the Government and the lack of competition for these interest rate rises but the former Government wasn’t able to prevent what, four, five interest rises just in the last year of its term.
ANDREW ROBB:
No, well they were interest rate rises which again grew out of a very strong economy and they were increases in line with the Reserve Bank recommendations.
What we’re seeing now and I think what is annoying people is that the big banks are making increases well and above that which is seen to be appropriate by the Reserve Bank.
MARIUS BENSON:
The Government is pointing to a range of measures it says it’s taking in regard to the banks. One of those is finalising legislation to give shareholders a bigger say in executive pay.
Bill Shorten, the Assistant Treasurer, says for Ralph Norris, the head of the Commonwealth Bank to for example take home $16 million a year is way out of line with reasonable expectations. Do you agree with Bill Shorten on that?
ANDREW ROBB:
I agree. I don’t see how anyone running an institution which is in a privileged position in this community is worth that sort of money. Big banks are going to make significant profits no matter what because they do not face any competition.
The big bankers may earn serious money as chief executives if in fact they did face serious competition – they don’t here in Australia any longer.
But we’ve got to look at where the problem arose and it arose not because of actions by the big banks, they’re taking advantage of the situation that’s been handed to them by the botched approach to the guarantee.
We have to go back to the source of the problem.
MARIUS BENSON:
Can I interrupt you there and just narrow that question down? If the Government is providing the safety net under the big banks and their executives, should it have the power to provide or establish a ceiling over the pay levels of those executives?
ANDREW ROBB:
Like I was saying, they can and they can look at these sorts of things…
MARIUS BENSON:
But should they in your view?
ANDREW ROBB:
[Inaudible]… you then ask the question about shareholders and the people who own those banks and that is the shareholders – they should have the power to effectively dictate the pay rates or these sort of broad decisions of the board.
Now, they should have the power to influence that at the shareholder meetings.
But the problem is, let’s not get diverted, the Government want to divert us and the community onto one or two areas which will not solve the underlying problem.
The underlying problem of the banks increasing the cost of the mortgage to people willy nilly is the issue to be dealt with. It will only be dealt with when the banks know that some other organisation can undercut them if they get out of whack. And this is the problem.
The Government has to seriously look at how to reinstate serious competition. All those organisations that have now been bought up by the big banks that used to provide serious competition, they’ve all gone. They’re all now absorbed into the big banks system.
They’ve been bought or they’ve collapsed or they’ve gone back overseas and disappeared from the market.
It’s because the Government gave the big banks a very privileged position for twelve months during the global financial crisis. It trashed 25 years of competition build up in this market. It has meant that the banks are now in this very strong position where they can snub their noses at everyone.
The Government must start to firstly take responsibility for this mess and secondly do something serious about it.
MARIUS BENSON:
Andrew Robb, thank you very much.
ANDREW ROBB:
Thanks Marius.