The failure of the big banks to pass on recent interest rate cuts is ripping off homeowners by $500 a year and is set to be investigated by Australia’s top consumer watchdog.
Treasurer Josh Frydenberg has bowed to pressure from ACCC boss Rod Sims to take action after the banks repeatedly ignored his own pleas to pass on the full value of the cuts to help stimulate the economy.
“The failure of the banks to fully pass on the recent rate cuts to their customers, when their cost of funds have come down significantly, leaves them exposed to the charge that they are putting their profits before their customers,” Mr Frydenberg said on Sunday night.
“This is not a good outcome for either their customers or the economy as a whole, and comes just months after the royal commission shone a bright light on misconduct in the banking sector.”
The market power of the big four banks – which control about 80 per cent of the market – will also be examined.
The Morrison government was keen to paint the idea as its own on Sunday but the nation’s top consumer watchdog has been pushing the new inquiry for months.
In September, Mr Sims told a parliamentary committee in Canberra he was keen to get the green light from the government.
“We don’t think there’s strong competition in retail banking,” Mr Sims said.
At the time, Mr Frydenberg said: “If a request is made the government will consider it in the usual manner.”
Mr Sims said he remained “surprised at how little price competition there was between the big banks.”
“Even though you’ve got some quite big players outside the big four, it’s not clear that any of them are really displacing any of the big four or making serious inroads.
“Our general concern is that there is a lack of competition and doing these continuing inquiries was what I’m sure the then-treasurer had in mind,” Mr Sims said.
Leaked documents obtained by The Sydney Morning Herald and The Age have previously revealed the regulator’s plans were well advanced and the only real concern was proceeding without political support.
“There may be a perception that we are commencing the inquiry before the Treasurer has formed a view on whether it should proceed,” the documents said.
The ACCC investigation will review the response by the big banks to the three rate cuts by the Reserve Bank in June, July and October.
The rate cuts have slashed the cash rate by a total of 75 basis points.
However, the big banks have passed on a fraction of the benefits to homeowners, with average reductions of 57 basis point.
On an average home loan of $400,000, that’s a $500 a year hit to homeowners.
Labor’s treasury spokesman Jim Chalmers said the government had finally bowed to pressure.
“They’ve been dragged into this kicking and screaming. They would rather not be going down this path. They are only going down this path because of pressure from the community, the media, and Labor,” he said.
“Australians are facing, under this Liberal government, record household debt and stagnant wages, so you can understand why they get so angry with the banks when they don’t pass through interest rate cuts.
“As the Reserve Bank has pointed out, our banks are still incredibly profitable by international standards.”