What’s your money doing in a big financial institution?
That’s the question asked by a new study commissioned by the Australian Bankers Association.
The study, which found that big banks were the biggest losers out of the industry’s big three, finds that, despite their high-risk, high-reward nature, banks are not spending the vast majority of their customers’ money on investment projects.
They are, in fact, spending most of their money on debt service and on servicing of clients who are not in their own business.
But the big banks do spend a significant amount of money on those projects, particularly on interest payments on their debt.
Why do they do it?
In short, the big bank is doing what the big investment banks want them to do.
“The banks want to be able to generate the money they need to service the huge volumes of money that they are getting from customers,” says Peter Gillett, a senior fellow at the Bank of Economic Advisers.
“The reason is simple: They want to make money on their investment in their asset base.”
The banks’ primary objective is to be profitable in order to keep those clients, which they call “core” customers, as they make their money from the investments they make.
In the case of a big investment bank, that means a big proportion of the money it makes from lending is in the form of interest.
“It is the reason the banks are paying out interest, because interest is the cost of doing business,” says Gilleott.
However, the bank’s interest rates are set to remain so low that it will not be able even to generate a profit.
And that means that the money the banks make from these risky investments will be very expensive to repay.
What happens when the banks run out of money?
Once the interest rates have been reduced to zero, the banks will no longer be able use their own money to make loans to customers, and will instead use their customers money.
That means that, for example, if a customer defaults on their mortgage, the funds the bank used to finance that debt will not exist any more.
And because the bank cannot pay its customers back, it will likely end up with a very high debt burden.
How to get back what you paid for The study found that the biggest winners from the big three banks’ strategy are their customer base.
The average cost of a customer loan is $1,000 per customer, while the average cost per customer loan of the big four banks is $2,400.
This means that if you borrowed money at the banks and lost it at the end of the month, you would be owed back $1.2 million.
Banks’ average cost to a customer: $1m, or $2.4m if you lost your money at $2 million per customer Source: The Australian Financial Reporting Council, Australian Taxation Office, Financial Conduct Authority, Australian Financial Institutions Council, Bank of England, Australian Bureau of Statistics, Financial Stability Board.
Source: Australian Financial Report, Australia’s largest banks, Australian Bank Association, Australian Capital Territory, Australian Banking Association, Business Council of Australia, Commonwealth Bank of Australia and Australian Prudential Regulation Authority.
“This is the difference between having a very good rate of return and a very bad rate of loss,” Gilleot says.
It is worth pointing out that these are figures from a year ago, and there have been some big changes to how the big Australian banks make their loans.
As part of the reforms that came into effect in October 2018, the banking sector is now required to offer customers the option to repay the money in full or at a discount.
While this is great news, Gillet says it is not enough.
“When you are making a loan, you are paying for the risk you are taking, and the risks are going to be much higher than they were before.”
What about the big six banks?
They are also not taking the risks lightly.
They have also increased their rates of return on their loans in the past year, according to the Australian Financial report.
On average, the four big Australian banking groups make returns of between 5.8 per cent and 6.2 per cent.
Gillett says the biggest winner from the deregulation of the Australian banking sector in the mid-2000s was the big five banks, which were able to increase their returns by a total of about 20 per cent in a year.
If you are a consumer and you have an interest rate of 5 per cent, the rate of repayment will be $200,000, but the bank will not pay you back the money.
Instead, they will pay you interest.
The rate of interest will depend on the value of the loan, the type of interest they are offering, and what they are charging for the loan.
“In a nutshell, the more