The inquiry into the conduct of the four big Australian banks is being reported heavily in the mainstream media, even after it wrapped up last week. Each statement from the bank bosses was dissected as to how it could be construed into anything anti-competitive or resulting in higher-than-required interest rates for consumers.
The inquiry focussed (in-part) on the inability of the banks to pass on the recent RBA rate cuts in full. Notably the banks cited funding pressures as the issue, while also recording records profits.
The question on the lips of everyday Australians is: why should the banks make record profits when I'm struggling to get ahead on my mortgage?
A delicate trade-off
The regulators would like to see the banks pass on the whole interest rate cuts, however, they're also cognisant that a lot of the nation's superannuation balance is invested in the banks. So a precipitous fall in bank profits or dividends will quickly wipe out some of Australia's wealth.
Couple this with record low interest rates which have seen Australia's retirees struggle to live on the income their investments generate, and we have a situation where regulators may find the benefit of lower mortgage interest rates to customers will be far less than the consequences of lower bank share prices and dividends.
Massive Impact
If we make the assumption that Australia's super pool is invested broadly in line with the ASX 200 (probably not an entirely fair assumption, but reasonable nonetheless), the big four banks may make up 27% of the balance. So just a 10% fall in income from the big four could have an out-sized impact on retirees' free cashflow to potentially slow consumer spending and keep inflation at a low level.
What's next?
Banks have an important role to play in helping many retirees retain their cashflow. Even so, I don't recommend that you buy Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) or Australia and New Zealand Banking Group (ASX: ANZ).