Senior Australian academics have a radical solution to the scandals and crisis of confidence afflicting our banking sector: the revival of a publicly-owned bank.
The refusal of the big four banks to pass on last week’s full cash rate cut has only added to growing outrage at the sector’s perceived failure to live up to what Prime Minister Malcolm Turnbull calls its “social licence”.
Labor’s push for a royal commission, supported by several key Senate crossbenchers, is sure to intensify on Wednesday when the Commonwealth Bank unveils what is widely expected to be a record profit of $9.5 billion for the year to June.
Professor John Quiggin, Australian Laureate Fellow in Economics at the University of Queensland, told The New Daily that a counterweight to bank misconduct, “padded” margins and a lack of competition might be the creation of a people’s bank – exactly what the Commonwealth Bank used to be.
“There is still a very strong argument for a publicly-owned bank with a charter of offering a narrower range of services specifically to households and small business,” Prof Quiggin said.
He argued that savings deposits and basic loans are public utilities from which private banks should not derive huge profits. A government-owned bank could provide these crucial financial services at lower costs, while also helping to fix the problem of low confidence in the banks, which he said “isn’t going away”.
“What we’ve seen over a very long period is that competition hasn’t managed to significantly reduce the banks’ margins, even though you would expect that over 100 years of technological progress that the margins on borrowing and lending ought to be reduced, especially when the value of assets has risen so much.”
The professor pointed to the government-owned Kiwibank in New Zealand as proof the idea can work.
Kiwibank was established as a subsidiary of the New Zealand postal service in 2002, and offers banking services through post offices and book shops. Its advocates argue it has delivered lower fees and better services. Crucially, a reading of its press releases suggests it has passed on every interest rate cut of the Reserve Bank of New Zealand in full.
We were never the near neighbour or the obvious choice. So we have a maverick streak, an inbuilt desire to avoid the predictable and find our own path. This is what Kiwibank was born from. We started a revolution to bring this independent spirit to banking. #INDEPENDENCE
Posted by Kiwibank on 2014年12月2日
The idea of an Australian public bank has other supporters. In a paper published in The Australian Economic Review in 2015, Melbourne University economics professors Paul Kofman and Carsten Murawksi put forward similar arguments.
“In Australia, where the banking system is dominated by four major banks, core ﬁnancial services are often not provided at cost and exclude signiﬁcant parts of society. High net interest margins on residential mortgages, high fees on superannuation accounts, a lack of credit for small- and medium-sized enterprises or rural Australians, the unavailability of key risk management products, such as ﬁxed-rate residential mortgages or annuities, are examples that spring to mind.”
The economists also pointed to the complexity of the sector; the information asymmetry between customers and powerful banks; a lack of funding and powers for regulators; and a lack of incentives for the big four banks to innovate.
“We suggest … the establishment of a public-sector institution that provides core ﬁnancial services, such as payment services, savings accounts, mortgages and other basic forms of credit, to retail customers and small- and medium-sized enterprises. We think of it as a utility that ensures cost-effective provision of basic banking services to all Australians,” they wrote.
“The institution would be independent but backed by the Commonwealth Government and funded by government equity, deposits and public debt. It would be governed by an independent board, be transparent and accountable to the public.”
In addition to Kiwibank, there are public banks in Germany, the Netherlands and Switzerland.
Australian history also provides an example. The Labor government of Andrew Fisher created the publicly-owned Commonwealth Bank in 1911. It was gradually corporatised, before being privatised by Labor under Bob Hawke and Paul Keating in the 1990s.
“This will be a bank belonging to the people and directly managed by the people’s own agents,” Mr Fisher famously declared in his second reading speech. “Our chief aim is not to make profits, but to ensure safety and security to depositors.”