http://www.theaustralian.news.com.au/story/0,25197,24766298-5013871,00.html Deposits caught out by guarantee
THE Rudd Government's controversial decision to guarantee bank deposits continues to have unforseen consequences in the banking sector, with some now claiming interest rates on deposits are artificially high as a result.
Bank executives have claimed the October 12 introduction of free insurance for deposits of up to $1million has tied their hands, making it harder to pass on cuts to the official cash rate by increasing bank funding costs.
Westpac's group executive, retail and business banking, Peter Hanlon told The Australian the fact that bank deposits are guaranteed meant there was no value placed on risk management, leading to "rates ... at artificially high levels".
NAB chief executive John Stewart said banks were bidding against each other for deposits, pushing the price up. "If you were to say we could get wholesale funds cheaper, then deposit rates would come down and we'd be better able to pass on cuts," he said.
The effects can be seen with online products. Westpac and NAB currently offer 5.75 per cent and 5.25 per cent introductory rates, respectively, for those who sign up to their esaver and iSaver accounts. CBA and ANZ offer 5per cent on their Netbank and Online Saving accounts.
