Swan's Promise A Lame Duck

IT'S simple. The easier it is for you to leave your bank, the harder it will work to keep you. Conversely, the harder it is to go, the less banks will do to induce you to stay. Australian banking is big on the converse.

This is well understood by the Treasurer, Wayne Swan. However, while Mr Swan is strong on the theory, he's weak on the practice. Mr Swan is the Treasurer who was going to empower Australians to "vote with their feet" if they weren't happy with their banks. However, his promised "bank-switching package" has turned out to be just empty wrapping. There's no "dedicated complaints hotline", no "detailed website", not much of anything, really, and certainly no relief for borrowers from high exit fees.

Mr Swan is right to put moral pressure on banks to cut rates. The Treasurer says banks were quick to follow official interest rates up, and should be just as fast following them down. However, the Treasurer can only ask. It is the Reserve Bank that sets the cash rate, and it is the banks that decide how far they will follow movements in official rates. They are not inclined to be generous. With the Reserve Bank expected to start cutting rates next month, the banks have been very busy finding reasons why they can't promise to pass on in full the expected reduction. While the Federal Government does not set interest rates, it does control the regulatory environment in which banks operate. The significance of the promised bank switching package is that it is part of that regulatory environment. When it comes to consumer protection, the Government has the power to enact law.

It has lately been suggested that some seemingly simple changes could greatly enhance the power of customers to switch banks. Account numbers, for example, should belong to the customer not the bank, and be readily transferable from one bank to another. And when a customer changes banks, all their direct debits should move with them in one lot without the customer having to make a fresh arrangement for each payee. Of course, the banks protest that such streamlining is too expensive or otherwise not do-able. Yet banks in Britain and Europe have just such arrangements.

The Treasurer should bear in mind that if hard-pressed borrowers find it too difficult to switch banks, some may switch governments instead.