Don’t bank on ASIC
Townsville THERE are two critically important things for you to understand about the so- called “rate rigging” by three of the four big banks.
The first thing and the one that is most relevant to bank customers is that the “rate- rigging” – even accepting all the ASIC allegations and assertions as gospel ( which, they are not) – had absolutely no impact on the interest rates the banks charged on their home loans.
To put that more directly, the banks were not rigging the rate so they could charge a higher rate to home loans borrowers. There was absolutely no connection between the two, not even indirectly.
Secondly, the banks absolutely did not collude to – and again, I am only using the term for convenience – rig the rate ( what’s called the BBSW or Bank Bill Swap Rate).
This was exactly different to what might seem to have been a similar situation in Britain over their equivalent rate which is called LIBOR ( London Inter Bank Offer Rate).
There, the banks did collude to, mostly, make the rate appear higher than it really was in order to charge higher rates to borrowers.
Here, the banks were if anything doing the exact opposite of colluding, with one bank aggressively buying or selling securities – from or to – the other banks.
Yes, that was done, on the ASIC evidence, to impact the BBSW; and as a consequence – again, on the ASIC evidence – charge some business customers a ( very marginally) higher rate.
But, and this is important, impact the BBSW only as a consequence of real transactions not fake ones; and in any event impact it at just points of 1 per cent ( there are 100 points in 1 per cent).
Why is that important? Because if NAB, say, was aggressively selling securities to force the BBSW higher, it could only do so if there was willing – and sophisticated and knowledgeable ( about NAB’s objective) – buyer, another bank, on the other side of the transaction, prepared to buy them.
But assuming the NAB tactic worked, what was the benefit to NAB? It might marginally change the rate charged on some of its loans to its, essentially big, business cus- tomers because they are priced off the BBSW.
In contrast, such a forced increase in the BBSW could only flow on into home loan rates if it was sustained over an extended period – while these “rigging” exercises were only intended to and only lasted a day – again, taking the ASIC claims at face value.
But also, could only flow on if the changes in the BBSW were significant, like, say 10- 15 points. And they were not; they were much more marginal.
To stress, the changes had to be significant and they had to be sustained over an extended period to perhaps impact on the home loan rate; and they were neither. In short, there was no impact; and not even an ASIC going, in my opinion, rogue has tried to claim there was.
It is the easiest thing in the world and self- evidently alluringly seductive for commentators and the media more broadly – and some regulators – to bash the big banks, mostly on the basis of profound and even quite impressive ignorance if not also stunning stupidity.
This bashing doesn’t even get to first base. We will all be done a service if Westpac persists with arguing the case to a proper conclusion in court.
This is not to say ANZ and NAB were wrong to settle, especially not on the basis which NAB unveiled on Friday.
The terms are essentially an admission by ASIC that it had no case against NAB. Indeed, it arguably announces that NAB was completely innocent, but that it made financial sense for it to pay ‘ go- away money’ to ASIC.
The agreed penalty was just $ 10 million. All NAB admitted to was “unconscionable conduct” – not “fraud” or “rate- rigging” and certainly not ripping off customers.