The guarantee on retail deposits is having the "perverse" effect of keeping interest rates higher than they would otherwise be, Commonwealth Bank chair John Schubert told a business lunch yesterday.
Schubert, in remarks reported by
The Australian, said CBA had to compete with second-tier banks that were offering deposit interest rates of more than eight per cent.
He said this had pushed up the bank's cost of internal funding, in addition to the increased costs of borrowing offshore, the newspaper reported.
"Interest rates are higher than they would be otherwise," Schubert said.
CBA set the lead for other banks in pricing in the home loan market this week, holding back some of the cut in cash rates in repricing home loans. Other major banks have followed its lead (to within a basis point or two).
One bank to take some price leadership in a separate product category was Westpac, which has at least cut credit card interest rates roughly in line with this week's cut in cash rates. All banks, including Westpac, have not, however, cut rates on credit cards by much (if at all) to reflect the 200 basis point decline in cash rates in recent months.
Schubert called for the guarantee to be capped at a low level to try to ease some of the "dysfunctional behaviour" in the market. The current cap is $1 million and banks must pay fees (in practice by offering lower interest rates) on deposits over this level from the end of November.