13 August 2010 Editor Australian Financial Review Letters to the Editor Delivery by email edletters@afr.com.au Dear Editor, Re Bankers have no shame by John Hewson Page 58 Opinion Dr Hewson’s attack on the Australian banking system (AFR, 13 August 2010) is unfortunately long on rhetoric but short on fact.  Let me make just a few examples.   Claiming that “much of the small business sector is pushed to the brink” of collapse due to banks “knowingly restricting credit” cannot be substantiated by Government data, which shows that lending to small business has not fallen significantly, and has in fact recently increased. Credit is undoubtedly more expensive now than before the GFC, as one would expect when international markets remain volatile and global economic recovery remains fragile.  In such an environment, banks are also managing the risks of business lending more closely and more carefully. This prudence by the banks can be difficult for individual businesses, but is essential to the stability of the system as a whole. Dr Hewson also uncritically restates the myths that the Reserve Bank sets lending interest rates, such as on mortgages, and that Australia’s banks needed taxpayer generosity to survive the crisis.  On the first, when 30 cents in every dollar lent by the major banks has to be raised overseas in expensive and volatile markets, the RBA cash rate is not determinative of the costs of lending in Australia, as the RBA itself has stated.  On the second, while the wholesale guarantee was necessary despite the strengths of the Australian regulatory and banking system because foreign governments guaranteed their banks, Australian taxpayer dollars were never seriously at risk and taxpayers will actually earn some $5.5 billion dollars from the banks for this privilege.  This is in stark contrast to countries such as the UK and US, where taxpayers bailed out their banks to the tune of billions of dollars. Yours sincerely, Steven Münchenberg