THE DISTILLERY: Rates chicken

The big four banks are playing a big game of chicken over their interest rate movements and the onlooking crowd – the commentators – are becoming increasingly agitated. The reason why the interest rate debate is so futile is it's riddled with conflicting, or even unacknowledged, interests. Mortgage-holders want a rate cut, but they're also depositors who want a rate hike. Sometimes they're shareholders and want a healthy dividend, and sometimes they're indirect shareholders through a super fund and don't even know it. But they're also taxpayers who want a stable financial environment so they offer a guarantee – a favour they expect to be repaid in more ways than one. It's all very confusing, but most commentators can't help but pick a side. Leading the charge for the banking sector is The Australian's John Durie, while for the mortgage holders it's The Sydney Morning Herald's Ian Verrender. While we're on banking, The Age's Michael West has an interesting angle on the new Standard & Poor's ratings for our forgotten regional banks, while The Sydney Morning Herald's Ross Gittins proves once again that he's so much more than an economics editor.

But first, it's The Australian's John Durie, who issues the much-needed reminder that not all bank customers are mortgage-holders.

"Amid all the game-playing, the banks are justified in their decision to keep some of money for their own pockets. ME Bank's Jamie McPhee, who has passed on the full rate cut, was partly right yesterday to say the banks are favouring shareholders over customers. But some customers are depositors, and in these uncertain times, some prudence is justified – which is precisely why the RBA cut its rates.”

But The Sydney Morning Herald's Ian Verrender has grown tired of the string of record profits from the banking sector that are running like a metronome. More importantly, he's sick of the predictable excuses that the big banks offer up when the bottom line is written.

"The banks counter with a predictable argument. Forget the profit figures, they say, our returns are tiny compared to the size of our assets. Que? Why, of course they are. Banking is a high volume, low margin business. Their assets are the loans they dole out to us. They raise that money from depositors and wholesale markets, clip the ticket and offload the cash to borrowers. You can't compare that with building a mine, a steel plant or spending years developing software for a high-tech business in the hope of getting a return years down the track.”

Meanwhile, The Age's Michael West has taken a look at a Standard & Poor's decision and found something confusing – not a unique situation by any means. West points out that the decision to downgrade Bank of Queensland on the basis of ‘systemic risk' seems odd, given that the federal government has given the impression that in the event of another global financial crisis, all's equal for bank rescues.

"Already the big four control more than 80 per cent of the mortgage market. Were the small banks allowed to fail and the big banks bailed out, it would deliver even more market concentration and power into the hands of a few. It would be competition madness. So it is that the ratings agency has either been told on the quiet that small banks may not be bailed out, or it has misread the governance landscape?”

And fourth in this morning's Distillery is The Sydney Morning Herald's economics editor, Ross Gittins. Gittins has been so much more than his title would suggest for some time and one of his recent critiques has been on the overemphasis of GDP as a measure of a country's prosperity or even its happiness.

"This is why, early this year, the Herald commissioned the highly regarded Dr Nicholas Gruen, principal of Lateral Economics, to explore the feasibility of calculating such a more comprehensive indicator. From this week, the Herald will publish the results of the Herald-Lateral Economics index of wellbeing every quarter, just a few days after the Bureau of Statistics' publication of the quarterly national accounts, with GDP as their centrepiece. Our purpose is not to supplant GDP, but to fill the vacuum left by the absence of a timely, more comprehensive, single indicator of social progress.” Good on him.

Staying with interest rates for the rest of this morning's commentaries, The Age's Michael West acknowledges the banks are facing higher funding costs, but also points out that when there's a taxpayer guarantee in place, shareholders are even further from being their only stakeholders.

Meanwhile, over at The Australian, Judith Sloan argues that Australians should feel lucky to have missed the bullet that hit banks in Europe and the US. Her colleagues Richard Gluyas and Jennifer Hewett reach similar conclusions.

In rates-related news, The Sydney Morning Herald's Elizabeth Knight delivers an interesting analysis of Reserve Bank movements and consumer psychology. Specifically, Knight shows how retailers know consumers across the board respond well to interest rate cuts, even if only a third of them have home loans and the big four hold on to a slice of the reduction. She goes on to point out that retailers are increasingly capturing more of our dollars through beauty and health offerings to make us look younger, which, like the interest rate phenomenon, is largely an illusion. The Herald Sun's Terry McCrann also touches on the relationship between interest rates and retail spending.

Elsewhere, The Australian's Criterion columnist, Tim Boreham, points out that while the argument from the big four banks is underwhelming, easing deposit rates and stronger lending margins mean that bank shares are probably a good place to be. The Australian's economics correspondent David Uren notices that if the Reserve Bank thought yesterday's growth figures would continue, they'd be increasing interest rates, not cutting them. The Australian Financial Review's economics editor Alan Mitchell says the latest national accounts would be referred to by Paul Keating as ‘a beautiful set of numbers', while The Age's Peter Martin says the economy is booming in Western Australia, and that's about it.

Meanwhile, The Australian Financial Review's Chanticleer columnist, Tony Boyd, takes a different approach to The Age's West on the topic of regional bank ratings changes, by pointing out a power shift in the sector towards Bendigo and Adelaide Bank.

In mining news, The Age's Garimpeiro columnist Barry Fitzgerald (who, it's just been announced, is moving to The Australian), finds BHP Billiton chief executive Marius Kloppers squashing speculation that he's thinking about offloading the company's aluminium and nickel divisions in the same fashion as the diamond business. Over at The Australian, Matthew Stevens, who is soon to move to the AFR, takes a look at Orica's troublesome Kooragang Island ammonium nitrate plant and Robin Bromby takes a wild ride on the nickel price.

And wrapping up, The Australian's Bryan Frith finds a strong belief in the market that Whitehaven Coal and Aston Resources will be able to reach a deal and create a $5 billion coal force to be reckoned with. The Australian's Rowan Callick laments the fact that while Australia's economic future is tied to the growing fortunes of Asia – the man on the street knows this – our development of executives ready to face the region is terribly poor. And Fairfax's Insider columnist Ian McIlwraith takes a look at the latest Transurban deal.