Australia’s Royal Commission into Banking has been long overdue most people would agree. The nature of financial lending has evolved dramatically since its deregulation in the mid 1980’s.
The competition and growth of second and third tier finance providers, together with the demands from their shareholders, forced banks into areas and diversification that were, to say at the least, questionable. The Royal Commission has now uncovered much, that many of us already knew, and that few would have ever dared criticise.
The Banks have been the Australian economy’s greatest strength and now potentially its greatest threat.
What we have is the great conundrum.
Shareholders are suing the banks whose share price then suffers to both parties detriment. The more that is being claimed the greater their losses.
Banks now need to review all their add-on charges to consumers, which have to date supported record profitability. So to maintain profitability will they be forced to increase interest rates on those same consumers?
With tightening credit controls, borrowers who now wish to move loans from the banks who are raising interest rates, may now not qualify under new lending requirements.
And with these new lending controls, banks will not, in the immediate future, lend at the previous capacity thereby reducing the borrowed money supply. The main beneficiary of easier money in the past 30 years has been the property industry, which has grown and is advancing on the supply of money. What now?