WEDNESDAY, 23 JANUARY 2019
SUBJECTS: Banks, credit squeeze.
LEON BYNER: Let's talk to the Shadow Assistant Treasurer Andrew Leigh. Andrew, good morning. Do you agree that we might and should expect this?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning, Leon, and good morning your listeners. I certainly am concerned when you see this kind of behaviour going on by banks. I mean, it's one thing to make sure that you're doing your due diligence on a borrower, but it's another thing to be engaging in this sort of pretty intrusive involvement in people's lives. Just because you can see in your neighbour’s bathroom window, you shouldn’t start making comments on their body when you see them in the street. And the fact is we've got a bit of a credit squeeze on at the moment. The Council of Financial Regulators has warned of this last year. Philip Lowe the head of the Reserve Bank has warned about credit - having been quite loose for a number of years - now potentially becoming too tight. I think this is just the latest manifestation of it.
BYNER: What do you think the reaction should be? Now again, are you comfortable with the banks doing this or do you think somebody needs to have a word with them and say ‘Hang on a minute, you can surely do responsible lending without making calls about people's takeaways?’
LEIGH: No, I'm not comfortable with that sort of behaviour and I think that's the banks overstepping their mark. On the broader issue of credit availability, I think we also do need to make sure that credit is flowing to those who are setting up new enterprises. Robert Shiller, one of the great scholars in finance, talks about the importance of finance in managing risks and making us more productive. Ensuring that people are able to get money for startups, which they wouldn't be able to finance themselves, makes us all a more productive society. So when we get this kind of credit squeeze coming on which the regulators have warned about, that creates problems for the entire economy. I think we're in a bit of that situation now, quite different from where we've been couple of years previously. In 2017, 40 per cent of new housing loans were interest-only loans. That was clearly too high. Now the pendulum seems to have swung the other direction.
BYNER: Let me just quote you something that Rob Gottliebson says in response to this. He says ‘I suspect the chief executives of the banks do not know this is happening. The Royal Commission has discredited top bank management and bank staff are fearful that evaporate comes calling they'll lose their jobs. They are taking matters into their own hands and intensifying the credit squeeze via these sorts of actions’. What do you say to that?
LEIGH: I think that's right. I think this is one of the many manifestations of ways in which banks have tightened the availability of credit. You clearly want to ensure, as Gerard Brody just told your listeners, that you're lending to people who are able to repay. But it's also important that we don't see an excessive tightening of credit. There is research done by the Reserve Bank, really important research by Gabriela Araujo and Jonathan Hambur, which looked at how firms that don’t have a strong track record are struggling to get credit. And again that's a problem. If you've got a great idea, it shouldn't need to be the case that you've got a generation's worth of financial statements in order to get a loan from a bank. Otherwise, if that's the case, we go back to the bad old days of credit really only being available to the elite as was the case in the postwar decades.
BYNER: Andrew Leigh, Shadow Assistant Treasurer, thank you.
Authorised by Noah Carroll, ALP, Canberra.