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The Mad Banker's Tea Party
This article appeared in The Sydney Business Review on 15 February, 1995
If Lewis Carroll wrote Alice in Wonderland today, the character would be "The Mad Banker" instead of the Mad Hatter. Mercury made hatters talk nonsense – it must be gold which has this effect on bankers.
Let's look at some things bankers say. These statements defy reason, so anyone who believes them must be mad. And bankers would not say them if they did not believe them, would they?
It takes five days to clear a cheque.
Banks say that every cheque is returned to the writer's branch for signature verification. Actually, cheques are processed electronically, and cheques deposited on any day are cleared within 24 hours. This lunacy has now progressed to bank cheques, with at least three banks (St George, Westpac, Commonwealth) wanting a week to clear what most people regard as cash. By the way, St George "needs" two days to clear cash deposited to a VISA account.
You can't make money with credit cards.
Banks say that too many people pay cards off early and don't pay interest, so fees are necessary to make card systems profitable. The fact is that the earlier people pay, the better it is for the banks. The ideal would be for everyone to pay their Bankcards off the day after each purchase. The banks would then be making about 3.5% per day from the merchant discount. That's 1277.5% per year if you could get it every day. (That's simple interest – it is about 28,000,000% if you could compound it!) I would like a business buying $100 notes for $96.50. I will take as many as you want to sell, and I promise not to charge you a fee.
Fees are a response to market demands
That's right!. This is the only business in the world where customers are demanding higher prices. In the last two weeks I heard one banker say that fees were only introduced by his bank in order to remain competitive in the marketplace and another say that, as Australian banks had low fees by world standards, they needed to be increased as a move towards "world's best practice".
Banks are not profitable
The story goes that banks once had two sources of low-interest funds - no-interest cheque accounts and 3.5% savings accounts – and could therefore lend profitably at reasonable rates. Now of course, they only have no-interest cheque accounts and savings accounts at 2% (less fees), and so can only lend at high rates and make small billion-dollar profits like those recently announced by NAB and ANZ.
Banks compete with each other
Back in the early days of television a cartel calling itself "The Seven Free Enterprise Banks" ran advertisements proclaimed the benefits of competition. These were paid for by a group of "competitors" offering identical services at identical prices. Nothing has changed since except that banks' product offerings are now so confusing that no-one knows what is going on.
Here's the challenge! If the CEO of any bank made a commitment to true competition and could persuade his executives to act accordingly, that bank would have market domination (more than 50%) within six months, and after twelve months one of the other major banks would be looking for a buyer. For a suitable fee, I will tell them how to do it. But, then again, maybe they don't want to compete.
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