by Patrick J. ByrneNews Weekly
Election 2001: When will the parties support a new bank?
, November 3, 2001
Former ANZ Chief calls for inquiry into "People's Bank"Will Bailey, former chief executive of the ANZ Bank, has called for a major public debate and inquiry into the establishment of a new government-backed "people's bank" to service hundreds of thousands of Australians left behind from the deregulation of the financial system.
He called on the major political parties to make a commitment, before the Federal election, into holding a public inquiry next year.
Mr Bailey was head of the ANZ bank for most of the 1980s, deputy chairman of Coles Myer from 1992-95, and as a member of the Economic Planning and Advisory Committee (EPAC) was a long-term adviser to the Federal Government.
He said that the deregulation of the banking industry had gone too far and had left behind too many ordinary citizens, small businesses and farmers.
"To redress the situation, a 'people's bank' modelled along the lines of the old Commonwealth Savings Bank is needed. It should focus on servicing the customer rather than providing high returns for shareholders.
"Many people need a bank that provides passbook accounts and term deposits. Many are not able to transact Internet banking, or not interested in banking that way.
"A new bank could possibly provide basic banking services through Australia Post's network of post offices. A 'people's bank' run this way would not inflict the fees and charges that have become an integral part of modern banking. Many people needed basic savings accounts that earned moderate interest, and credit card facilities where fees and charges are not too high.
"The need for such a bank is also being strongly felt by small businesses and farmers. Banks have closed many branches in rural and regional areas. Many small producers pay effective interest rates considerably higher than advertised rates and bear higher charges as well."
Fees and charges now earn the major banks more than $5 billion annually.Mr Bailey said, "A new 'people's bank' could provide long-term finance for farmers and small businesses.
"If a new bank was government-owned or guaranteed, it could raise funds at lower rates of interest in the financial markets. The Government could provide seed money for its establishment, just as the New Zealand Government is currently providing about $A63 million to establish their new 'people's bank'. It could also obtain low cost funds from the Reserve Bank.
"This would benefit customers. Customers would also benefit from the fact that a 'people's bank' would not have to generate high profits to satisfy shareholders."
Mr Bailey said he wanted to stress that he was not being critical of his former colleagues and was not suggesting a new, full-service bank like that into which the former Commonwealth Bank evolved. "The industry treated me well. However, the system has changed, and deregulation has meant that all the banks are forced to compete to produce the highest returns for shareholders' funds, or face a shareholder revolt.
"That wasn't the case in the days when the banks were highly regulated by governments. The demand for a high return to shareholders was not that strong. Most of the cost of services was borne by the interest rate margin, which was effectively fixed by government.
"That system has now changed and the banks are providing a higher return than other companies on the stock exchange.
"While the new system works very well for many in the community, there are also those who have been left behind. The government has a responsibility to help provide for them rather than try to coerce the existing banks to do so at a loss. Getting a 'people's bank' going will be less expensive than many other election promises being made.
"It may also have a strong appeal to many voters in marginal seats.
"The time for consideration of a 'people's bank' has come. We need a major debate and a serious public inquiry to investigate the issue," Mr Bailey said.
Colin Teese, former Deputy Secretary in the Department of Trade, welcomed Mr Bailey's call.
He said, "Mr Bailey's suggestion for a new 'People's Bank' is long overdue and should be taken up by the political parties.
"His idea is for an institution that could serve small farmers and businesses with low cost loans which would sustain businesses which otherwise could not function effectively without them. In that sense it would make an important contribution to development.
"The arrangement is widely used overseas, especially in Europe, to help keep farmers on the land. If adopted here we could expect it to have the same effect. It would also help our farmers meet the subsidised competition they inevitably face in overseas markets."