True competition only way to keep banks honestby John P McAuleyNews Weekly
, May 19, 2001
The present, completely privatised banking system has failed Australia as completely as its opposite, namely, Ben Chifley's 1947 nationalisation proposal.
The dominant four banks, and their satellites, in the existing banking oligopoly now act almost as one body in eliminating competition and diversity at the branch level. Changes in interest rates and fees are made almost in unison.
Services are virtually indistinguishable amongst the banks. The banks' lobbying has succeeded in eliminating regulation of any substance.
Branch numbers have been shredded, and staff discarded, without regard to communities or individuals. Personal service and freely available independent financial counselling for bank customers had been traditional features of branch networks.
These are now virtually nonexistent, because short-term bank profit takes priority, and mature staff are very often retrenched. Lifelong banking careers are now infrequent.
Rural and suburban Australia are especially neglected by the banks. Profit and greed rule. Banks now exist to serve their masters: senior management and that amorphous and invisible mass known as "shareholders".
The public interest and customer needs barely rate notice.
Talk of regulation by the Reserve Bank or by the Australian Competition and Consumer Commission is a farce. Witness the paltry conditions placed upon the sale of the Colonial State Bank to the Commonwealth Bank in 1999.
This sale fetched a massive capital profit of about $2,500 million from the firesale five years earlier of the same bank by the NSW Government for less than $200 million net, when the Commonwealth Bank and the other majors had been precluded from bidding. This allowed a single bidder, the Colonial Group, to close the deal for the proverbial peanuts.
The private banks succeeded in a long-running campaign of lobbying the major political parties through a series of "inquiries" from the Campbell Report to the Ralph Report. They thus eliminated the only effective competition, namely that from publicly-owned banks.
Bank profits in aggregate are largely the outcome of public policies, of the flows of international funds and of other credit factors for which the individual banks have made no contribution, other than systematic participation. Nevertheless, a bank licence is, uniquely, cost-free.
A publicly-owned bank is needed, a Commonwealth Rural and Industrial Bank (CRIB).
CRIB could engender genuine competition and serve customer and community needs as first priority. It ought to have a national branch network and provide personal and specialist service. It could also engage in industrial refinancing and administer publicly-funded rural and industrial programs - such as for relief after floods and bushfires - and assist in the resettlement of continuing large numbers of rural producers being forced off their properties.
Currently banks benefit from the existing limit on the number of major players. They operate as a "cartel", as those regulators who recently criticised banks for their credit card charges commented.
Monitoring bank fees and profits or threats by regulators is not a proper replacement for effective competition; nor is a voluntary code or charter. Australia Post cannot fill the gap, since it is not geared to handle loans or other major traditional bank services.
Finding capital for a government bank ought to be no barrier. Governments have amassed billions of dollars from asset sales in the 1990s. The planned sale of Sydney Airport alone, for example, is expected to fetch between $4-$5 billion.
Innovative financing from private sources on a minority basis could also b successful.
Electorally, the reinstatement of a government bank would be popular. In addition, banks and other financial institutions should be treated, tax-wise, on a par with other market service-providers, and should no longer enjoy favoured GST status.
It is unreal to treat the substantial influence of banks over governments as "benign" but government influence over government banks as "pernicious". Experience with the present fully privatised banking system has shown that banks and bank supervisors have been unresponsive to the community's legitimate needs.