The Reserve Bank of Australia will pay the big banks $10 billion a year in interest for money the banks have sitting in deposit. Callum Foote and Michael West look at why the RBA has chosen to start paying interest on almost half a trillion dollars sitting in its settlement accounts.
It was lovely to see Australia’s biggest bank, the Commonwealth deliver such a handsome profit this week, some $2.4b in cash profits for the third quarter, which equates to an annual take of $10bn in cash. That’s profit, not revenue. Yet another milestone, yet another record smashed.
The CBA’s Big 4 banking peer Westpac had only just handed down its half yearly $3.1bn profit. All four banks, of course, were mighty quick off the mark to pass on the 0.25% hike in the Reserve Bank’s cash rate the other day. None of this dilly-dallying which occurred on the way down when the central bank would cut rates and the Big Four would play chicken to see who could pass on the rate cut last.
Despite their stratospheric profits, their economists are tut-tutting about proposals for meagre $1 per hour wages rises which would save low-income Australians from further wage stagnation.
In any case, the banks are cleaning up, they always do. And the Reserve Bank is being unusually charitable to them by offering to pay them interest on the $406bn they have sitting on deposit in their Exchange Settlement Accounts (ESAs).
That’s another $10bn a year in interest payments to feed the bottom line and keep shareholders happy with their juicy franking credit subsidies on top.
The Story: https://michaelwest.com.au/mollycoddled-reserve-banks-10bn-gift-to-banks-to-help-with-rate-stress-or-profits/
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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.
