Government Sponsored Bank Interest Rate Rorting

The worst kept secret in the financial world is that current bank profit margins on home lending are not just at an all-time high but are there by a country mile. Where banks used to generally be happy with a 20 – 40% premium on the benchmark interest rate, today the Big 4 are unilaterally reaping between 300 – 500%. That's damn nice work if you can get it.

To get banks to return to more ‘conscionable’ home lending profit margins is necessary but sadly won’t happen until and unless the government removes the unprecedented guarantee on depositors funds it gifted the Big 4 banks ‘temporarily’ in the GFC which has allowed banks to become so greedy given in the intervening 12 years the policy has allowed them to systematically wipe out all domestic and international competition in the banking sector and today gouge your average Australian with rates 3 to 5 times higher than it should be given the benchmark rate.

In other countries that currently have or have recently had similar benchmark rates to our own present rate, their loan rates have been between 1 – 1.5%, a 25 – 100% premium on the benchmark rate. Compare that to our unconscionable 3 – 4.5% which is a 400 – 600% premium over the benchmark rate.

We would of course be down to those levels now had the official rate cuts over the past decade or so been passed on as they should have been and would have had we still had a proper competitive banking sector but because our Big 4 banks with the government bank guarantee know that other financiers simply cannot compete in our market they have understandably grabbed the gifted opportunity to progressively gouge the market with both hands.

So what would normalising mortgage rates to 1 – 1.5% now achieve?

Heaps!!! Imagine all of the incredible good it would do not just to overextended mortgage holders but to our strained economy as a whole. The countless billions of dollars of extra money in people’s pockets to spend would give our beleaguered retail sector a much needed boost and quickly steer us well away from our current recessionary path.

Given all this, why isn’t the government lifting the monopolistic guarantee?


Forget all the lip service and feigned indignation from the government every time official rates are cut but not passed on at how naughty the banks are for continuing to rip us off the way they have been and their advices about how we should take our business elsewhere to punish them.

It is the government’s very cosy back-scratching policy that has given banks the means to gouge the market the way they have and also to ensure there are no viable options to the Big 4 (which totally understandably move in unison to maintain their current stranglehold on the market, indeed they would be commercially inept to do otherwise).

It is that simple… but so is the solution….