Facing a future without the guarantee
By Eric Johnston | smh.com.au | 28 January
Steven Munchenberg ... ‘‘If we think it’s some sort of beauty parade, we’re probably kidding ourselves"
The incoming head of the nation's bank lobby says the Government guarantee that gives banks access to cheap funds is likely to be removed this year.
Steven Munchenberg - a 45-year-old career lobbyist who worked in Canberra with the Business Council of Australia - takes charge of the Australian Bankers Association in March.
He says there is a danger for the industry if the funding guarantee remains in place too long.
"At the moment we've got a window of opportunity where investors do positively differentiate the Australian banking system," Munchenberg told BusinessDay. "We don't want to spoil that by having the guarantee in place for too long."
In his new role, Munchenberg will represent the interests of some of the most powerful players in the economy: the likes of Westpac, Commonwealth Bank, ANZ and National Australia Bank. But he will soon be known as the public face of the industry that Australians love to hate.
Even he is willing to admit banks are on the nose.
"The banks have undoubtedly got and have always had reputational challenges," he says. However, he believes this perception can change.
"If you go back 12 months ago, at the height of the global financial crisis, people were pleased that Australian banks were not collapsing or deeply enmeshed in the sorts of problems that the northern hemisphere banks had been involved in," he says.
"People were pleased that Australian banks were safe. Having said that, it didn't last very long before people were clearly concerned about what a number of people now perceive as the dominance of the Big Four banks."
Still, Munchenberg remains realistic about the attitude of most people to banks. "If we think it's some sort of beauty parade, we're probably kidding ourselves. [But] we still have a situation where many customers think their bank is OK, while still having a general negative perception of the whole industry."
In an environment where interest rates are on the way up - in most cases outpacing moves by the Reserve Bank - the prospect of winning over customers will be even tougher for banks.
Munchenberg, who is also a former head of government affairs with the National Australia Bank, says banks have made "tough calls" on interest rates.
"The fact that not all of the RBA cash rate cuts were passed on, the fact that a number of banks have gone higher on the way up, are all legitimate decisions based on funding costs. The fact that there is negative attitudes means there is still a lot more work to do on interest rates," he says.
Still, he insists the association under outgoing chief executive David Bell has done a "very creditable job".
Munchenberg's strong links with Canberra suggest the banking industry is becoming increasingly concerned about the prospect of tougher regulation, particularly in the wake of the financial crisis.
"The biggest influences on that regulation is going to be a small group of countries - US, Britain - that had the biggest problems. So one of tensions we face is making sure our regulatory system is suitable for our needs," he says.
"Banking is one of the most highly regulated industries, so it's obvious that you would want to have a good working relationship with government."
Banks and banking policy barely rated a mention in the 2007 federal election. However, the industry is again expected to emerge as an issue in the next election, which is due this year.
A looming issue will be the timing of the removal of the wholesale funding guarantee. Australia is yet to outline a timetable for the removal of the program, even as others such as Britain and the US are taking steps to dismantle similar guarantees.
The funding guarantee has helped Australia's big banks raise nearly $100 billion using the Federal Government's AAA credit rating. However, regulators including the Reserve Bank have argued that it is time for banks to stand on their own feet and raise funds without the safety net.
"There's a tension there that ultimately the Government is going to have to reconcile," Munchenberg says.
"On the one hand, the guarantee is still being used by a number of banks, including regional banks. But if that guarantee stays in place too long, there's a danger that international markets start saying, 'Why is Australia so reluctant to move it? Is it possible they know something we don't?"'
First published by Smh.com.au on January 28 2010
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