Interest rates have just risen outside of an RBA cash rate movement in an effort to minimise the risk to banks as Australia continues to have historically low interest rates and high levels of borrowing.

Australia’s ‘big four’ banks (CBA, Westpac, ANZ and NAB) are overseen by APRA, Australia’s banking regulator. Recently it’s come to light that APRA wants these big four banks (as well as Macquarie) to increase their capital by 2%.

So what exactly is bank ‘capital’?

Capital is essentially the money a bank has at its disposal to absorb losses in the event that things go belly up.

And don’t be fooled that raising 2% is a measly sum – when we’re talking banks, 2% equates to billions of dollars they’ve needed to raise.

By increasing the amount in their coffers, the banks should have more of their own resources to survive any issues that arise before a rescue from APRA, the RBA or the government is necessary. Basically, avoiding a bail out similar to how the American government bailed out their banks during the GFC.

So how do the banks raise capital?

They raise interest rates, among other things.

The big four have just raised their standard variable rates with Westpac being the first to jump with an increase of 0.20%. CBA followed not long after with a 0.15% rate increase. Then came ANZ and NAB with hikes of 0.18% and 0.17% respectively.

Whilst the non-majors (eg Suncorp, Bank of Melbourne, ING etc) don’t have the same regulatory requirements, generally when one bank raises their rate the others follow in order to remain competitive. As such we’ve now seen interest rate hikes from all lenders. The increase is different from lender to lender however it’s generally been a hike of at least 0.15% with some banks raising rates up to 0.29%.

Contact us for a chat about your home loan today as you could now be paying too much interest with these recent rate increases.