So are the big banks gouging, rapacious predators or not? What was until recently an RBA (and Treasury)-sanctioned consensus that the banking cartel had no justification lifting interest rates above the RBA’s own cash rate hike has been muddied by the RBA’s own views in the minutes from its November 2 board meeting. In contrast to the clear statement in the October board meeting minutes about borrowing costs, the November minutes note that while some banks had had a small reduction in net interest margins and others a small increase, and competition for deposits had “levelled off”, bank borrowing costs were “slowly” rising and that rates might rise by more than the cash rate.

This, some commentators insist, is evidence that Joe Hockey has been barking up the wrong tree on borrowing costs and the government’s attacks on the banks have been unwarranted. If the RBA expected that banks might increase rates by more than the RBA did, apparently that meant it approved of them doing so. The Australian has been particularly diligent in peddling this line. Sydney University’s Elvis Jarnecic has done an elegant demolition job on such claims in what is, word for word, one of the best takedowns of media disinformation in recent years. As Jarnecic notes, it doesn’t much matter whether bank borrowing costs are “slowly” increasing if the banking cartel has been more than recovering those cost increases — which it has been.

The case against the banks received further reinforcement — as if it needed it — over the weekend when Christopher Joye spotted an alarming trend in post-GFC RBA lending data in relation to small business lending secured by residential property. Before the GFC — over an extended period, 11 years — interest rates for SME loans secured with residential property had been only marginally above regular residential mortgage rates — as logic would suggest they should be. But since the GFC, the spread between the former and the latter has blown out to over 1%, and at one stage was up to 1.5%.

The political dimension to this is that it’s much easier for banks to gouge small businesses than households via residential mortgages. The media and politicians — as we’ve seen repeatedly in recent weeks — are fixated on residential mortgage rates, and not small businesses. As Joye notes, it’s possible there’s an element of cross-subsidy going on between residential mortgages and business lending.

The economic dimension, of course, is that higher loan costs for small and medium business have impacts on the viability, growth prospects and employment generation capacity of those businesses. All of which is why the focus on residential mortgage rates serves to detract from the substance of the debate over banking competition, or the lack thereof.

Wayne Swan’s focus has been on talking up a “fifth pillar” of credit unions and building societies. Compared to the big banks, the mutual sector is more plinth than pillar, and it’s a shame Swan’s concern for competition wasn’t manifest when he and the ACCC waved through Westpac’s 2008 takeover of St George in a decision that, even during the depths of the GFC, was criticised for its impact on competition. The government’s pricing of its wholesale funding guarantee hasn’t helped, either, with mid-tier banks like Bendigo Bank forced to pay a fee 80 basis points higher than that paid by the Big Four to access the guarantee, despite the much smaller systemic risk presented by the mid-tier institutions.

In short, when it comes to competition for the banking cartel, our recent policy settings have been anything but encouraging.

Still, Swan’s way on competition makes more sense than his cryptic claim that the government had “we’ve already had a fundamental review of the banking system”. If “we” means the federal government is a non-partisan sense, and “already” covers the 1990s, then he’s correct. And, yes, the rolling implementation of international financial stability reforms is a priority, but quite why that prevents a Wallis/Campbell style inquiry into not just competition but systemic issues around governments guarantees and moral hazard remains one of the mysteries of current politics.

As for Joe Hockey, he keeps getting leaked against, but he has the public on side. Perhaps that’s what annoys his incontinent shadow cabinet colleague.