Wizard Founder Pushes For Publication of Bank Funding Cost Benchmark
The founder and former chairman of non bank mortgage lender Wizard, Mark Bouris, has called for the banking industry to establish a watchdog similar to FuelWatch or GroceryChoice, which would be charged with the responsibility of monitoring movements in wholesale funding costs of banks.
Mr. Bouris who sold his company Wizard to GE, now runs the wealth advisory firm Yellow Brick Road, said a watchdog would allow mortgage borrowers to better predict movements in interests rates in an era where lenders were adjusting their lending rates independent of the RBA’s monetary policy.
“For 20 years there was a connection between retail interest rates and the official cash rate but that’s now gone, and as consumers we don’t know what the benchmark is any more. We should have a benchmark rate for the cost of wholesale funds. That way, if the benchmark rate is 7 per cent, for example, and my variable rate is 6.5 per cent, then I should start thinking about fixing, because I could soon be paying 9 per cent if you allow a 2 per cent margin over costs.” Mr. Bouris said.
Mr. Bouris’s desire to see benchmark funding rates published by either the federal government came as the ANZ increased variable rates with its Big Four counterparts expected to follow suit, after the RBA raised the official cash rate by 25 basis points on Tuesday.
The rate hike was the first such increase since the RBA raised interest rates by 25 basis points to 7.25 per cent in March 2008.
Since then as part of its monetary response to the global financial crisis, the RBA cut official interest rates to nearly half century lows of 3 per cent prior to Tuesday’s announcement.
RBA Governor outlining his reasoning behind the rate increase, said that the pretext for setting such low interests rates no longer exists.
“With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Mr. Stevens said.
Mr. Bouris says he understand that lenders may be reluctant to disclose confidential commercial information related to their individual funding costs, but added that this could be tackled by the publication of an industry average rate which is compiled using a variety of sources, including the 90 day bank bill rate amongst other measures.
“This will not make banks reduce their profit margins, and I’m not a critic of their margins.But what it will do is enable consumers to make more informed judgements about where interest rates are going, when the critical question is whether they should fix their rates or not.” Mr. Bouris said.
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