BANKS: The New Deal PART 3

Leading on from the previous entry Banks: The Emperors with No Clothes? with the observation that banks have so much power. I think the simple answer is the same as why any person or institution has power – because we gladly give it and they gladly take it. They have been seen as serious and trusted institutions in the past, and challenging those ideals was difficult, a bit like a young child questioning their parents “Because I say so” attitude. There is not necessarily logic there but there is unquestionable authority in that set of words.

Perhaps another reason for banks’ power is because we haven’t been very creative in coming up with new ways of obtaining credit or at least, not new regulated ways of obtaining credit. So, we play it safe. And what the banks want, the banks get, even if this somehow distorts our entire world of work and life!

As discussed in the previous entry, the requirement for full-time or, at least, permanent work to get a mortgage meshes well with some pretty old-fashioned ideas in many workplaces that you are not a real person unless you work full-time – a lesser citizen, a second-class person and frankly, quite invisible. Just talk to parents who are seeking reduced hours to look after children at home, or people with disabilities or chronic illnesses who would like work but can’t work the God-given quota of 38 hours a week.

And yet, employers continue to cry out that they can’t find good talent, they find it hard to recruit good workers. I think that solutions are staring them in the face and employers and employees alike seem unable to see differently.

What are some of the possible solutions?

I have made reference to a solution that HR departments/ small businesses could implement quickly in a previous entry (see FLEXIBLE WORKING: April 2010).I suggest that for some workers to move to what I would term a “permanent flexible” employment arrangement, where the time is carefully managed, for the same agreed salary. The concept is that pay stays constant whilst hours/ time worked might vary.

For example:

Sue works in a specialist retail outlet and is employed for a 38-hour week. This business is very busy over Christmas and New Year and during the Southern winter – June to August. In total, the business needs her to work about 50 hours a week for about 4 months of the year. The rest of the time is quiet and requires less time – about 30 hours per week. This system means that regardless of the hours worked or not, as long as the hours worked per annum are managed as the same, the pay will remain the same every week.

TIME WORKED

52 weeks per year x 38 hours per weeks = 1976 hours per annum

• Busy period            50 hours x 17 weeks = 850 hours worked
• Less busy period  31-31.5 hours a week x 31 weeks = 978 hours worked

MINUS 4 weeks recreation leave x 38 hours per week = 152 hours paid leave

* Public holidays are mixed in here and appropriate pay rates should be added in to this if they are worked. Sick leave is also included in these hours.

PAY remains the same over the 52 weeks of the year, regardless of hours worked. This means that there is stability in income even if the hours move and change. It also means that employee and employer need to keep an eye on hour and work done and this can improve focus on productivity and also provide a reason for discussing work. And I can comment positively on this arrangement as this is currently my own work arrangement with a small business, and so far it is working extremely well.

And what about some new solutions for bank lending practices?

I’d suggest they re-visit their risk management model in conjunction with a good hard look at the evidence of:

• what factors actually support ability to service a mortgage, and
• what factors are good indicators of mortgage default.

They would then have some real evidence to guide how their criteria for loans needs to change. I would predict that a review of the actual track record would be an eye-opener and a basis for workable change.

QUESTION: What else could you suggest that banks and organizations could do to allow work practices and credit lending practices to be more flexible and still create positive and stable outcomes?

BANKS: The Emperors with No Clothes? PART 2

My experience with getting a home loan a number of years ago (before the GFC) was bizarre. My husband and I had 85% of the total price (including stamp duty) of the property and could not get a home loan with one of the regular banks. Why not? Neither of us had permanent, full-time work. The fact that we both had long-standing contract work that was extremely well-paid did not seem to count.

So, how do lenders conduct their risk assessment of potential customers? My brief but wide-ranging research on current practices in Australia yielded the following key criteria:

• Employment status – those who have a “steady” employment record are a better risk than self-employed or those who don’t;
• Income– undefined
• Overall credit history – savings record including deposit, money management and repayments record over the past twelve months i.e. a positive credit history

Furthermore, on the issue of employment, the self-employed are singled out as particularly high risk “Typically, traditional lenders see the self-employed as a credit risk and are hesitant to approve them for a loan. This is a consequence of the banks risk assessment being primarily based upon income serviceability…Despite this, many people who are self-employed are very solvent and some are among the wealthiest people in the country. That said, most money lenders still prefer you to be on a stable salary income than to be listed as a sole trader or partnership structure.”*

In addition, the latest statistics (ABS November 2010) indicate that Australia has a total working population of 11.417 million of which 8.033 million (70%) are full-time workers and part-time employment is 3.384 million (30%).** And of these numbers, it is estimated that 18.5%*** are self-employed, approximately 2.112 million people, which is about 10% of the current total population.

In these times of change, fluctuation and uncertainty, the notion of permanent, full-time work as the key to approving home loans seems to me to be asking for trouble. It’s also quite ironic that banks are looking for stability- obviously their own work practices didn’t prevent the banking system falling into crisis, creating their own set of additional instabilities to world economies. It seems that they are looking from others what they are unable or unwilling to create for themselves.  They are not really setting a great example of leadership. So why do they have so much power? And what are some solutions for employers and employees so we can all get what we reasonably want?

Why do banks have so much power?

* Source: www.debtrelief.com.au

** Australian Bureau of Statistics November 2010 issue of Labour Force Australia

*** Independent Contractors of Australia Update May 2010

BANKS: Our Unequal Co-dependency PART 1

In Australia, the public tide of resentment against banks is swelling from a small set of waves to a tsunami, with a number of large consumer organizations and activists, such as Choice with their Better Banking campaign and GetUp with Hold The Banks To Account, beating the drum for support to the same cause.

As usual, the Government is slower to respond as they are caught in the bind of needing banks more than banks need them. The latest political tut-tutting at banks who had the temerity to increase their interest rates more than 0.5% above the official rate rise seemed to me to be more for show than anything with real teeth because they know it is difficult to bite the hand that feeds them.

Banks provide much needed revenue to Government (estimated at $5billion per annum) through their own profits being taxed and also by collecting taxes from customers (another $400 million p.a.), not to mention the 145,000 people /voters employed by banks*. In addition, Government has offloaded the burden of a cash payment system to using electronic transfers into bank accounts for all types of welfare payments, supplier payments and indeed, payments to their own employees. Don’t I remember the joy of getting real folding money into my hand when I was owed travel allowance (TA) for upcoming travel when I was a public servant – bliss! (Even better that it was not taxable: I think an entire column could be written about the ethics of that little number).

And whilst much of the current focus of public attention is on home loan interest rates, bank charges and also just in the last few days, a computer glitch that brought the entire National Australia Bank (NAB) payment system to a halt, the operations within banks have a much deeper effect on our world of work than first appears obvious.

Or, at least it does here in Australia.

QUESTION: What about elsewhere? Is the dependency the same or different? I would love to hear your thoughts.

NEXT: Banks: The New Emperors With No Clothes? It appears that banks generally have a less-than-rational risk assessment process for loans, and this has already got them into lots of trouble –why do they continue to do things the same way? And, for workers with mortgages, what effect does this have on the world of work?

*Source: Australian Bankers Association Inc- http://www.bankers.asn.au/Default.aspx?ArticleID=593