Bank bashing is one of those time-honoured, but ultimately frustrating pastimes in Australian life.
The more the banks are jabbed with accusations of unscrupulous practices, monopolistic pricing and poor service, the harder they tend to bounce back with record profits.
The banks don’t fear a lot, except perhaps recessions and rising unemployment.
Politicians – incapable or unwilling to land a blow – seem to be boxing well above their weight division when taking on the banks.
Only the Australian Prudential Regulation Authority, when roused to action, causes the banks to strike anything like a deferential pose.
APRA doesn’t come out swinging, though.
It communicates in moderate tones, often clouded in opaque financial jargon.
The regulatory thumbscrews are twisted ever so gently when APRA slips into its pale imitation of the Spanish Inquisition. Shrieks of pain and sobbing confessions are not heard from the banks.
At worst, there is some quiet grumbling, but more commonly the banks publicly welcome APRA’s moves through gritted teeth, saying they will have minimal impact on the way they go about business.
Lately APRA has been proselytizing more loudly and turning more screws more vigorously, but to what effect? Still no screaming or even noticeable squirming from the banks.
And why not? Firstly because the banks have to cop it, and secondly not a lot is going to change: banks will still be selling home loans and still making a decent lick of profit on them.
As a rough rule of thumb, every 10-basis-point increase in the standard variable rate of home loans adds 2-to-3 per cent to the earnings of the big banks.
That’s pretty handy, especially when waved through by the authority policing your actions.
Bursting property bubbles or making life comfortable for over-extended borrowers is not really in APRA’s mandate.
The first twist in the latest crusade against imprudent lending was in late-2014, when APRA placed a 10 per cent speed limit on the annual growth of investor mortgages for the big four banks.
Step two, in 2015, was to curtail the big banks ability to arbitrarily judge the riskiness of their loans themselves.
Recent research from investment bank UBS pinpoints a remarkable coincidence between banks being able to calculate their own risk on mortgages – or assign risk weights – and the exponential growth in Australian household debt.
From the time the original Basel 1 reforms were introduced in 1988, the banks leveraged their mortgage books far more heavily than other lending products and allocated a greater proportion of their book to mortgages.
Subsequent Basel reforms gave the big banks even greater leeway, allowing mortgage debt to blow out to be currently about the same size as Australia’s economic output, but growing far more rapidly.