Matt Nolan :
@steve
Fair enough – that is indeed his cheeky little motive. Thought he would know better being an economist though

I thought he was a farmer? Though I see he has commerce and an english literature degrees. Assuming its in economics I guess its better than a history of statistics.

13% annual growth in deposits doesn’t suggest they’re having much trouble getting money in the door overall. But they may well be struggling to attract longer-term deposits, which are in more direct competition with the recent bond offers.

Isn’t one of the arguments around rates at the moment because they can’t control that price and that they are having to increase deposit rates to compete with some of the bond offers around? A friend in retail deposits was telling me they were really struggling to attract cash. So do they really have such control?

Let’s have a look at the numbers

In March 2008 there were 345000 floating mortgages worth $19b, ($55000 each) and 959000 fixed mortgages worth $128b ($133000 each), or a total of 1300 000 mortgages.

In March 2009 there were 462000 floating mortgages ($75000 each) and 883000 fixed mortgages worth $119b ($134000 each), a total of 1340 000 mortgages.

If one looks at the marginal increase in mortgages, there are 117000 new floating mortgages worth $16b or $136000 each.

hence
(1) banks are having no problem finding floating customers;
(2) At the margin, the new floating mortgages look to be fixed mortgages that have expired and haven’t been refixed yet (that marginal number is suspiciously close to the average fixed mortgage);
(3) [conjecture] as customers probably aren’t taking out a mortgage at a new bank (do they all meet the new minimum deposit requirement?) banks can probably get away with charging what they like.

No wonder Grant Spenser is a bit disappointed. More than anyone else at the Reserve Bank, he knows what private banks do, and probably realises they could lower floating mortgage rates if they wanted to, but they have no incentive to do so when their customers probably aren’t beating a path to the exit door. And since the Bank wants to fine tune the economy by lowering short term interest rates, it probably feels thwarted. Hence the open mouth operations to put pressure on the private banks.

The difference is that the banks dictate the price of the ‘stock’ – I’d like to meet a retailer who can claim that. And don’t forget that it’s not just deposits, there’s wholesale market funding as well, and banks have found it tougher to get funding that way. To stretch the analogy a bit further, it would be like a retailer pleading with a wholesaler to provide them with some stock.

Aren’t the interest rates paid on deposits a bit like the stuff in the stock room? Their cost needs to be funded somehow surely? What about shareholder expectations? Won’t that drive a need to sell more loans?

Also banks have been saying for years they are now retailers and trying to flog every god damn thing they can to you the moment you walk through the door, so I’m not sure the difference is that obvious.