Crazy-brave Norris calls Swan and Hockey's bluff

COMMONWEALTH Bank chief Ralph Norris must be crazy-brave. As our political leaders compete to show themselves tough on banks, he has invited them to do their worst.

The decision by Australia's biggest home lender to raise its interest margin by 0.2 percentage points on top of the Reserve Bank's 0.25 percentage point rise gives Wayne Swan and Joe Hockey the perfect excuse for reforms to make the big four banks face real competition.

Norris has bet that, in the end, their bank-bashing will be mostly talk, little action. And he is probably right.

The big four are now a firm oligopoly, controlling 87 per cent of housing loans. Since the mid-90s, our competition regulators have allowed them to gobble up their main rivals, and the global financial crisis saw off the rest.

Joe Hockey's nine-point plan has some good elements such as a new financial system inquiry but let's be frank: their impact would be marginal.

There's only one way to create serious competition to such a strong cartel: do what Prime Minister Andrew Fisher did in 1911, when he set up the Commonwealth Bank as a government-owned competitor. Our politicians won't do that.

The Commonwealth claims its borrowing costs have risen more than its mortgage lending margins. That may be, but its business lending margins have grown sharply, and Reserve Bank figures show the big four's total lending margins are now at their highest level since 2004.

Let's test the banks' good faith. If they regard their pre-GFC interest margins as sacrosanct, will they now commit that when funding costs fall as they will they will pass on all that fall to their customers?

If not, then this is simply a selfish use of market power. The banks are charging us more because they can get away with it. Shareholders pay Ralph Norris $16.2 million a year $310,500 a week to do just that.