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Wayne Swan has put ANZ on notice he will not tolerate the bank moving its lending rates independently of the Reserve Bank, after it revealed it would take the audacious step to review its rates on the second Friday of every month.

The move, ordered by boss Mike Smith and ANZ’s Australian chief executive Phil Chronican, was touted as a bid to knock down the notion that lending rates were tied to the official cash rate only.

The ANZ is quite right – there is no reason why bank lending rates should be absolutely tied to official cash rates. The ANZ and other banks should be at liberty to set rates wherever they like. For example, banks should be free to respond to market conditions – to charge more when there is a high demand for lending, less when there is competition for borrowers.

I don’t understand the liberal (in Australia this means the Labor Party/Greens alliance) obsession with regulating the banking sector. There are so many banking options in Australia that it would be virtually impossible for any one bank to charge substantially more for its services than the others. Any bank which was treating people unfairly would soon be out of business.

Bankers know more about their business than politicians. Excessive regulation adds to consumer costs rather than reducing them. But never miss a chance to meddle is the motto, I guess.

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