Opinion: Banks’ foot-dragging confuses the punters

"Ungrateful" and "arrogant" are two words that spring to mind when attempting to describe the current attitude and actions of the major banks in the local financial marketplace. The four major Australian-owned banks have yet to opt-in to the Government's retail deposit guarantee scheme as they are still arguing with Government and RBNZ officials about the small-fry competitors (Kiwibank, TSB, MARAC etc) getting a free guarantee as their deposits are less than $5 billion. In the meantime, the average Mum and Dad bank depositor is clearly under the impression that their money placed with the big 4 is Government guaranteed. The officials should be instructing the banks to make it very clear to all and sundry with widespread media notices as to whether their deposits are Government guaranteed or not. It is bad enough having debt market pricing totally distorted by the Government guarantee scheme, without these unacceptable delays by the large banks to putting the scheme in place. They have got what they wanted with the wholesale borrowing scheme added over the weekend, now it is time for them to come clean with their retail deposit customers. The lack of clarity from the banks as to whether funds are Government guaranteed or not is almost in contravention of the Fair Trading Act. The banks have no sympathy from me, as they played the risky game of borrowing short (30-90 days from New York and London CP markets, now closed) and lending long (30-year home mortgages) and have been found wanting as the credit crunch closed-off their cheap funding sources that they were over-reliant on. The big 4 banks have had a serious lesson in liquidity and funding risk management over recent months. They could learn a little about this form of risk management from a good number of their NZ corporate clients who diversified and lengthened their debt profiles when the debt capital markets were conducive three and four years ago. The banks seem to think that they can maintain their profitability levels over forthcoming years by passing all their increased funding costs through to their customers. The irony of the situation is that the Government guarantee moves are now shielding the banks from the full adverse profitability impact of their own excessive risk taking with their wholesale funding. NZ taxpayers are now underwriting their profits, so the Government has every right to dictate a few terms to them right now. Let's hope that the new Prime Minister and Finance Minister after Saturday (who understand these matters better than the incumbents!) start putting some ultimatums and strict conditions on this arrogant prevaricating on the part of the banks.   --------------- *Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com