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The big four banks look headed for another major inquiry after the government announced on Monday it would be referring them all to the Australian Consumer Competition Commission (ACCC).

The motive? After three individual rate cuts since June, the big four have managed to pass on barely two-thirds of the relief to their customers and the government wants to know why.

“The major banks have decided to put their profits before their customers, and that’s not a good outcome for their customers or the economy,” the government will tell journalists on Monday, according to a leaked government briefing leaked.

While the inquiry will examine how the entire banking sector has passed on the recent rate cuts, the big four have been painted as a “key focus” given they “hold around 75% of residential mortgage debt”, according to the government.

READ MORE: This is what the new ACCC inquiry will look like

READ MORE: The big four banks have taken nearly $4 billion from Australians in just 3 years by keeping rate cuts to themselves

It’s a curious about-face by a Coalition government which just last month rejected this exact proposal by ACCC chair Rod Sims. Going a little further back, the same federal government spent a great deal of time and effort fighting last year’s royal commission, eventually conceding defeat when it became inevitable. Then Treasurer Scott Morrison slammed it as a “populist whinge” and a “reckless political game”, voting against it 26 times — a fact Labor ran on heavily leading up to the last federal election.

So the decision by a Morrison government to launch an ACCC inquiry a little more than six months after the royal commission wrapped up is a strange one. While the royal commission upturned serious misbehaviour right across the financial spectrum, this inquiry is razor-focused on bank profit margins — Morrison for his part now is claiming to have never given the banks a free pass.

The banks, however, are under no obligation to pass on rate changes at all and they have a reasonable argument for why they don’t do so in full.

“Those rates move slowly because they depend on the banks’ past funding costs. They are funded from a mix of short term and other borrowings for terms of three months to several years,” University of Melbourne finance professor Kevin Davis wrote on The Conversation in response to the inquiry.

This means that any immediate change eats into the banks’ profits. While few Australians would have sympathy for those billion-dollar bottom lines, the argument has some merit. More so, because as the official interest rate screeches towards zero, there’s simply less and less room to move. The difference between the rate paid on deposits and the rate charged on mortgages grows slimmer and makes it harder to make a profit — ultimately what the banks are obliged to do.

Economist Stephen Koukoulas slammed the inquiry as “embarrassing” on Twitter, for not understanding this principle.

“You would think someone would have told the treasurer how banks raise funds … to on-lend for mortgages,” he said. “I wonder if he’s outraged that deposit rates haven’t been cut at the same pace as official rates?”

While this inquiry may win him some friends among Australians frustrated at the banks, it’s unclear what the inquiry will actually achieve.

“Ultimately, it’s customer awareness and action that will inhibit bank ‘profiteering’, far more than jawboning by politicians and the media,” Davis said.

If chairman Rod Sims could find a way to encourage Australians to simply shop around more, perhaps it could be a roaring success yet.

The ACCC will deliver a preliminary report by 30 March 2020 and a final report by 30 September 2020.

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