18 August 2010 The Sydney Morning Herald/Age Letters to the editors Delivery by email: letters@smh.com.au; letters@theage.com.au Dear Sir or Madam, Re: “Monopoly Profits of Banks” by John Collett, Money Section Age, SMH I was surprised the Money section reported on the Australia Institute (AI) and Finance Sector Union report as fact, without checking its claims. The article’s main assertion, that there is a monopoly in banking driving excessive profits, is not the case. Analysis of bank results shows a small fall in interest rate margins, continuing the long downward trend. This contradicts the claim that banks are overcharging on interest rates. The main reason banks have a greater market share at the moment is simply because Australia’s solid, healthy banks stepped in to fill the credit gap left when other smaller lenders, particularly non-bank lenders, were forced out of the market by soaring funding costs during the GFC.  This has been good for banks’ businesses, but has also been critical for borrowers, who have not experienced the sort of credit rationing that has badly damaged economies overseas. Despite this increased role of banks, there is clear evidence of competition in Australia’s banking system.  In the past two years, banks have slashed or removed all together a range of unpopular fees, such as late payment and overdrawn account fees, as they fight for customers’ business.  For borrowers, banks are offering a range of rates on mortgages and for savers, attractive rates on term deposits and online accounts.    The article fails to mention that our economy continues to benefit from the solid performance of Australia’s banking sector. Here, banks have underpinned our economic growth by keeping savings safe and providing finance to businesses, which keep people employed. Contrast this to the failures and bailouts of banks in the US and UK plus the sluggish performance of these economies in which high unemployment continues to take a toll on their communities.   Finally, the AI report’s call for price regulation would actually hurt the consumers it is aiming to help. Price regulation, whether it is interest rates or fees, is known to lead to credit rationing, the exclusion of some customers and job losses. This is not a good outcome for the stability of our banking system, its employees or its customers. Yours sincerely, Steven Münchenberg