Swan accused of going soft on banks

(AAP) Federal Treasurer Wayne Swan has been accused of going soft on banks for not demanding they pass on in full an expected official rate cut next week.

The federal opposition said Mr Swan had run up the "white flag" on bank lending
rates and he should insist retail banks match any Reserve Bank of Australia (RBA)
interest rate cut.
The row came as shares recovered from Tuesday's plunge on optimism the US Congress
would finally pass a massive financial bailout package.
Australian financial markets are betting the RBA could cut its 7.0 per cent cash
rate by half a percentage point when its board meets next Tuesday to try to ease
local pressures emanating from the global credit crunch.
After having been adamant that the commercial banks match last month's interest rate
cut, Mr Swan on Wednesday said the global credit crunch had made the environment
"more complicated", but he encouraged the banks to act as "responsibly and as
competitively" as they possibly could.
"I can assure you that I will be putting maximum pressure on the banks to ensure
they pass on the maximum amount that is economically responsible given events in
global markets," Mr Swan told ABC Radio.
But federal Opposition Leader Malcolm Turnbull said the banks had the capacity to
pass on in full any interest rate cut.
"Wayne Swan seems to have run up the white flag as far as interest rates are
concerned with the banks," Mr Turnbull told reporters in Adelaide.
"My view is the Australian banks have the capacity, given their profitability, given
their size, to pass on in full any official interest rate cut from the Reserve
Bank."
Opposition treasury spokeswoman Julie Bishop said she was disappointed that the
treasurer had effectively eased the pressure on banks.
"By stating that circumstances are different this time and that the treasurer just
hopes that the banks will act responsibly is very different to insisting that the
banks pass on the full rate cut," Ms Bishop told ABC Radio.
The opposition's comments prompted a stinging attack from the Australian Bankers'
Association (ABA), saying it is "extremely poor" policy.
"The coalition's policy demonstrates a lack of understanding of the funding position
of banks, and, if adopted, would potentially weaken the banks and further undermine
the position of non-bank lenders at a crucial time for there to be stability in the
sector," the ABA said in a statement.
It said the cost of wholesale funds had spiked to record levels in the past few
weeks because of the credit crunch.
Banks collect half of their funding from deposits, the rest is borrowed in wholesale
markets, including 25 per cent from overseas, it said.
The stock market rallied by 4.2 per cent on Wednesday, all but recouping Tuesday's
steep fall, after Wall Street snapped back overnight on optimism that a proposed
$US700 billion ($A879.7 billion) banking system bailout package will soon be passed.
The US Senate was poised to vote on a revised plan, after the House of
Representatives rejected the original package.
Mr Swan said he had spoken to US authorities on Wednesday morning and they had
assured him the administration was doing everything within its power to ensure the
package passes.
"It's very important that we get stability into the system where the system has its
problem, which is the epicentre - being in the United States and the sub-prime
problem," Mr Swan said.