Australia’s banks smarting

Australia’s banks are still smarting.

They did not expect the Federal government to move against them as swiftly or as elegantly as it did late on Friday.

But they brought it on themselves.

How?

By muttering that they might not pass on an interest rate cut, if there is one next week.

As  any Economics I student will tell you, there are limits to monopoly power.

Or, in this case, to oligopolistic power.

We all have good reason to be grateful to Australia’s banks.

They have not, for the greater part, indulged in reckless lending, as some in the United States have done, with disastrous results.

But there is a price for everything.  Even good behaviour.

And the good, at times, can become a little smug.

That’s why the Federal government announced late on Friday that it would inject $4 billion into the Australia’s housing loan market.

The Treasurer, Wayne Swan, said the government would be buying top quality mortgages with that money.

He was too diplomatic, of course, to say that the move was aimed directly at the banks.

But it will help their rivals, the smaller mortgage lenders, stay in business, at a time when money is particularly tight.

In short, the government moved to keep Australia’s four big banks on their toes, by reminding them that they will still face a little competition in the market.

The Labor party has learned a lot since it tried, unsuccessfully, to nationalise Australia’s banks, back in the post war era.

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3. Australia’s banks face tough times