Working Papers

Maybe the Banks Just Don’t Want Your Business

The big four banks have now set their post-November RBA tightening mortgage interest rates. Amid the shameful public vilification of the banks by politicians and others who should know better, almost no one has considered the possibility that, at least at the margin, the banks probably don’t want our business. People in the banking industry tell me that Westpac and CBA in particular have full mortgage books and don’t want to take on additional exposure to housing. Not surprisingly, they have the highest mortgage rates on offer. Notice too how ANZ and NAB are much more aggressive in their advertising? In any other business, using price signals to manage excess demand would be viewed as completely unexceptional.

Far from being greedy, the banks are being prudent, while the government tries to induce them into taking on additional risk. Of course, we could always go back to the days of regulated interest rates and non-price credit rationing, when getting money from the bank was a beauty contest that saw housing credit go only to the rich.

posted on 12 November 2010 by skirchner in Economics, Financial Markets, Monetary Policy

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If what you say is correct, and it may well be, then why do banks increase rates on their existing mortgages?

Why not quarantine existing customers from rate rises (or only raise them in accordance with the RBA decision) but have higher rates imposed on all new loans?

Posted by .(JavaScript must be enabled to view this email address)  on  11/15  at  11:33 AM

The banks have copped a lot of flak for charging mortgage rates well above the RBA cash rate (~2.65pp). But has anyone noticed their term deposit rates are well above the RBA Cash rate (~1.25pp)? Normally, term deposit rates are below the RBA cash rate.

What is going on?

Posted by .(JavaScript must be enabled to view this email address)  on  11/15  at  11:52 AM

It’s probably not a good look from a marketing standpoint. Banks’ price discrimination usually favours new customers.

The deposits side of the market certainly looks very competitive, but no one is giving the banks credit for that.

Posted by skirchner  on  11/15  at  03:22 PM

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