The government announced an enquiry into why the banks don’t always pass on the full RBA interest rate cuts this week. Ultimately banks are a business and they operate for their shareholders, and shareholders want profits.

A bank is a financial institution licensed to receive deposits and make loans. They have a range of moving parts to make this happen, they may lend the money that they have in reserves, they may borrow from funds overseas or they may use superannuation funds to facilitate this. It’s not as simple as borrowing from Pamela to lend to Paul.

We expect banks or any business large or small to operate ethically and compliant to rules and regulations, whilst still making a profit. Businesses are always on the lookout for ways to be more efficient and above all, more profitable.

The banks think the same. We are lucky to have 4 major banks in Australia with strong financial positions, strong credit ratings that continue making profits for their shareholders. You see, banks are a crucial part of the puzzle when you are looking to buy your home, invest in property, borrow money, to start or buy a business. Without borrowing money our economy would stop. Just look at our economy over the past 18 months, we had the property market drop in value, retail suffering and peoples sentiment diminish. This was all caused by the fact that people didn’t have access to credit. We need our banks to be profitable and the only way they are profitable is for them to continue to receive deposits and make loans. This is what is going to help our economy become stronger.

I’m not here to back the banks and agree with everything that banks do, however they should not be seen as the enemy, but our financial partner if we want to expand our wealth, unless you have all the money you need to expand your wealth, sooner or later you will need a bank to believe in your dream and become your financial partner in the next major financial decision you make.

It’s not the situation, but whether we react negative or respond positive to the situation that is important. Zig Ziglar

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