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ABC News Breakfast -

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(generated from captions) suffers another loss to India. Live.

Good morningment it's

Thursday, 21 October. I'm Waleed Ali. And Waleed Ali. And I'm Virginia Trioli. The top story - the Federal Opposition has challenged the Government to

tut more pressure on the banks

to keep interest rates in line with Reserve Bank banks. The

Treasurer Swan has warned the

banks from increasing rates

above the cash rate. Joe Hockey

says banks have been able to

gouge Australian consumers and

he joins us now from Canberra.

Joe Hockey, you said

raft of levers are available

for the Government to deal with

banks on interest rates. Does

bank ing act which allows the that include section 50 of the

Reserve Bank to control

interest rates, as Senator Bushby raised yesterday? That

wasn't one of the things I was

condemn template ing. I was saying over the last years, for example, there have saying over the last three

been extraordinary measures

taken by the Government to

assist the banks, whether it be supporting mortgage-backed securities supporting the residential

system, whether it be wholesale funding guarantees or retail funding guarantees, Government and therefore the

taxpayer have been in there

supporting the Banks. Now, at

the same time, the banks have been changing interest rates

beyond the movements of the

Reserve Bank. Now I would say

to you, Waleed, the Government's 30 statement

from Wayne Swan warning the

banks and express ing concern about moving outside the

Reserve Bank cash rate movement

has been totally ignored by the

banks - 30 statements banks - 30 statements from the

Treasurer! And they have completely ignored him, treated

him with contempt. I would say

now is the time for the

Treasurer to step up to the

plate and actually be listened

to by the banks and he has lots of levers for its. Coming back

to that issue in a moment. So

you disagree with what David

Bushby was saying? No, I different initiatives that can there are a whole range of

be used and it's as much about

as saying behind closed doors

to the banks, "Listen, guy, there is a social compact between you, your customers and

taxpayers." The Government has

stepped up to the plate to

assist you over the last few

years. Hen we make warnings, we

mean them." And the banks the inevitably will be coming to

the Government over the next

few years on the ongoing regulatory regime

a range of different thing,

asking for Government to help

them deal with challenge s that

lay a head. Now the Government needs to step up to the plate

and do something to put

pressure on the banks to make

sure they do not go beyond the

cash rate. I will just make

this point - it is not me, not Joe Hockey, it is the Reserve

Bank in their minutes which

were released only this week

which says effectively members

noted staff estimates, banks funding months. So now that they're relatively flat over recent

flatlining in their funding

costs, now is the time to put

pressure on the banks. I understand you're saying that

the Government should do

something. And I understand the idea that there will be

negotiations behinds closed

what you doors. But listening back to

what you said on radio, the statement that's triggered this

discussion, it's unclear

precisely what kinds of mesh

irs you're talking about. How

many measures are you talking

about? Are they sort of punishment do you have

in mind for the bank? A am not

going to be specific because I

am not fully aware, staz Treasurer would

Treasurer would be, of what the Treasurer would be, - as

banks are asking for at the

moment. But you can be

absolutely sure, as I know

having been a former Financial

Services Minister, that the

banks have a presence down here

in Canberra and they're asking

for something somewhere been

twn government. If they're not

do doing it now they will be

asking for something, somewhere

in the next few months. Now, I would say to you it all comes

down to the relationship

between the Treasurer, the Prime Minister and the

banks. And if the banks continue to treat the

Government with contempt, then the

the Government itself is

illustrate ing to the

Australian people that it is

weak and insipid and it has no ability to exact something out

of the banks for the benefit of Australian taxpayers and

Australian home borrowerers.

kind of Surely you can tell us what

mind: You don't necessarily

need to know the terrifics

what's being said wheen banks

and the Government. You said

there were measures available. Tell us what they are. Waleed,

for example, and you know I can become as technical as you

like. But Basel 3, which is a

new international framework for

liquidity and capital rules,

has been very much in the

middle of a debate with the

banks themselves, and with banks Treasurer did the right thing.

He went over there and he said

the Australian banks are well

capitalised, they're liquid. We

shouldn't be subject to the

same sort of rules you want 20

apply to a Bank of America or a

Citigroup or Royal Bank of

Scotland, some of the bank s

that have had massive losses

and arguably are under

capitalised. Now, he Wendt into

bat for the banks. But bat for the banks. But the

banks are treating Wayne Swan,

understandably, with some contempt, when he ly that the banks shouldn't

move beyond the RBA cash rate.

Now, I would say to you it comes down to the relationship

between the banks and

Government and the fact is the

banks are treating this

Government with contempt

because they see the Government

as weak and in-Syd id -

insippid and it is. It is a

Government in mess on so many

issues. Here is another one -

the Government is just going to

be completely ignored, yet

again, because they just do not

deliver on their words. I heard

a lot in that answer except a measure. Well, that's not

right. The reason it's an

important question, though, is

it raises significant

philosophical questions. What sort of philosophical precedent

is set in motion if the

measures you have in mind are

not yet detailing involve ing

involve the Government punishing businesses that don't

set prices that it likes. Hang

on, Waleed. When we were in Government,

Government, as part of our tax

reform package, we abolished financial institutions duty, and we

debits tax. They were two two

taxes that customers of banks

paid but they were a pain for banks themselves and the banks were in the door desperately arguing to have those two banking taxes abolished. Now,

the Coalition abolished them as

part of our tax reform package.

We didn't have to but we did.

In return when the Reserve Bank

moved interest rate, we said to

the bank, hang on guys, we've

scratched your back now you

have to scratch the taxpayers

back and you do that by not

moving beyond the Reserve Bank.

Now, if funding costs for the

banks are way beyond, as they

were during the global

financial crisis, way beyond

what would be the so-called norm, you would

understand it, your funding

costs are significant. This's

why until now I haven't gone

down that path. But now the

Reserve Bank in its minutes

released this week says that in

fact funding costs have

flatlined. Therefore, I would

say to the banks, "Hang on, costs have flatlined.

Therefore, guys, if you increase interest rates beyond

the Reserve Bank cash rate, you

cannot expect me to deliver all the things you want over the

next few months and years." Why

should it be pegged to the Reserve Bank

Reserve Bank cash rate anyway?

This has to do with funding costs generally that are not

just confined to the Reserve

Bank cash rate, a lot of money

that banks lend is sourced from

overseas. There are a) whole range of other fact thoorsz go

into the bank calculating rate will be, that it charges

its customers. So why would you

want to peg it just to what the

RBA is saying? Waleed, because the Government continues to

guarantee small retail deposits. Therefore, taxpayers are guaranteeing the deps deposits in the Banks

themselves. Secondly, the

Government is still in the market helping to create liquidity

liquidity in the residential

and mortgage-backed securities

market. Thirdly, it is a

that there is a tsunami of

potential regulation coming down the pipeline

internationally in relation to

liquidity and capital rules, and the governments and the governments - and the

banks want the Government to adcrowicate - advocate on their

behalf. I would say to you the

issue is the breakdown in the

relationship between the banks and the government. And the

failure of the banks and in

fact the failure of the

Government to say what they

mean and mean what they And the banks are just ignoring this Government because it's

weak. It is a weak Government

that is failing to put pressure

on the Banks. And what's worse Wayne Swan, 30 occasions, has huffed and puffed

puffed at the Banks over the

last three years. They've

ignored him. No it's time ignored him. No it's time to

actually do something. Is that

doing something withdrawing support, for instance? Well,

that do something can cover a

range of different initiatives. I understand that.

I am after the range. That's

what I'm trying to get to. I just gave lead. I can say it again and say it slowly for you. No just

answer the question that I

asked. Does it involve withdrawing support? What do

you mean by support withdrawing support? You mentioned the

Government has provide add lot

of support in advocacy terms,

particularly during the financial crisis, are you

saying that that sort of

disposition towards the Banks

should be changed? It can mean

discriminating in discriminating in its support

for the bank ing system against

some of the larger banks that

are gouging prices and still

making substantial, very

substantial profits. But I

would say to you it is as much

the power of the threat as it

is the delivery of the action .

And this is what's missing. And

there is a breakdown in the

relationship between the banks

and the government and that is because the banks don't listen

to a weak government. And you

have a weak government and a weak Treasurer and he can say

what regulationings you want to introduce

exactly do you want to change.

I say to you it's little more

subtle than that. It is about

saying, guy, you come to me

asking fe more my help, I am

coming to you asking for your

help on behalf of Australian borrowers

borrowers and credit card

holders. Do not go beyond what

the Reserve Bank is moving on

the cash rate because here in

black and white analysis says

your funding costs are flat

lieng. Joe Hockey We have to