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Friday, 10 May 1985
Page: 1726


Senator WATSON(10.12) —The deregulation of certain sections of the Australian financial markets has necessitated some legislative changes. The Bill before the Senate, the Banks (Shareholdings) Amendment Bill, is one of those in that it seeks to ease current restrictions in some areas to accommodate the entry of 16 new banking operations into Australia. One provision in the Bill is the raising from 10 to 15 per cent the voting shares an individual shareholder may hold in any one bank. I for one welcome the Government's new-found enthusiasm, which is directed towards making the private sector more competitive and opening up new fields of finance to Australian customers.

I have doubts as to whether the full consequences of the opening up of the financial system to 16 new banks have been fully appreciated by the Government. I hope that in this opening up of the Australian banking system to some of the largest overseas banks the Government does continue its thrust in making more open competition in all fields and that it does not leave untouched some of its sacred cows, which operate in a very protected and monopolistic environment.

Very often activities associated with government operate in what we might refer to as a mother's nest situation, with the fledglings being pandered to and fed by government while at the same time they make little effort themselves to be efficient or to go out to be part of a competitive and forward-looking world. All the new entrants are prudentially sound and are capable of providing considerable benefits to the Australian people. They will provide services ranging from shopfront branch networks incorporating extensive retail banking, services to rural and small businesses, housing finance, and specialist operations in wholesale banking.

Of course, there will be considerable advantages. For example, the National Westminster Australia Bank Ltd will concentrate on the corporate area and will draw from its parent company's expertise through that parent's position of being the largest of the British clearing banks, with world assets topping $100m. Barclays Bank will concentrate on trade finance in the wholesale areas. The Deutsche Bank will undoubtedly follow its holding company's lead in the provision of finance to the resource sector. Australia-Chinese trade should further be assisted through access to the large Chinese market, with the expertise to come from the Hong Kong and Shanghai Banking Corporation.

Although these changes will benefit some, they will positively disadvantage others in the finance area. For example, some of what are known as the present thrift institutions will be the first to notice change over the next few years following the entry of the 16 new banks. The smaller banks, savings banks, building societies and credit unions will readily fall into this category. Now is the time for them to reorganise their activities and to merge and be associated with national integrated computer networks. Unfortunately, these thrift institutions will get very little sympathy or support from the Government. Though such institutions may not be challenged directly by the entry of banks such as the Bank of Tokyo, the Bank of Canada, or JP Morgan Associates, other banks will pose more direct threats. My list is not conclusive, but as an example the Bank of America's association with the G.J. Coles network and the Chase AMP Bank are but two which will throw direct and new challenges through their competition in the retail area.

Undoubtedly some new capital will be introduced into Australia, but only a certain number of Australian dollars are available to banks in Australia. With the increase in the number of banking institutions, I believe that the smaller banks will suffer from the entry of foreign banks. There will also be a danger that the greater amount of capital and backing of these foreign entrants undoubtedly will bring a great deal of political clout. Further, there will be considerable pirating of accounts as the new banks attract investors. It is not inconceivable that in the short term we could see price wars as the new banks make bids, sometimes desperately, to win depositors. Although in the short term this will be beneficial for the customer, it could force out some of the smaller banks and banking type institutions. Therefore, it is not surprising that already there have been rumours of further rationalisation involving the National Australian Bank joining forces with the ANZ Bank. Should the new banks proceed to win business on the basis of higher rates to depositors on the one hand and lower than commercial rates to borrowers on the other hand, I believe that Australia's traditional institutions, if they are not careful, could be deprived or starved of loan funds.

A more prudent policy by the Treasurer would surely have been to have opened up the banking system more slowly to international competition. But, having been duchessed around the world capitals with gratuitous accolades, it is not surprising that Paul Keating is seen by some to be sacrificing his home nationals to the whims of the sometimes ruthless international community of money market operators. Surely a more Australian approach initially would have been to restrict the entry to those sectors where there are obvious gaps and where international expertise could have opened up new trade rather than throwing open challenges to some long standing, often non-profit, organisations in the financial area.

In the face of the aggression in the market place from the new banks many of the traditional non-profit organisations will be forced to amalgamate, to change the nature of their operations or to face bankruptcy. It is a desperate choice. The Westpac Banking Review of March 1985 is significant in that it comments that the existing banks, to remain competitive, will need to reduce their costs further and take full advantage of the opportunities arising from both deregulation and advances in technology. Non-bank financial institutions are in a more difficult position because of their borrowing costs and their finer profit margins. In this respect finance co-operatives and merchant banks are in a particular risk situation. Their share of the financial system and assets is likely to contract as the impact of greater competition becomes apparent.

Closures of too many of the traditional institutions could have a disastrous impact on the economy, particularly in decentralised areas. The consequences of this will be that as the traditional institutions, including some of the bigger banks, shed staff and close uneconomic branches as they mechanise and centralise there will be certain distortions and there will be closures. I believe that these costs essentially will be felt by the small businessman and particularly by people in decentralised areas. Certainly it is the cities that will benefit. Traditionally savings banks and building societies have been a great source of home building funds, but I can foresee that under a deregulated regime there will be no reason at all for savings banks to exist. Depositors will be urged away by higher interest rates and thus less funds will be available to the home buyer.

We have already witnessed a degree of volatility in the banking area with the recent announcement that the Australian Bank Ltd has posted a significant loss. That was due evidently to a very significant increase in bad debts and the decision by its board to write off those bad debts. Such a disturbing result so early must give some sort of indication of what can follow. In other words, we must expect greater incurring of and writing-off of bad debts as some of these new banks chase new business, chase depositors and make uncommercial loans to borrowers.

I can foresee the continuation of a trend evident in Australian society. Over some time we have witnessed the larger becoming stronger and the smaller weaker, and this will not be restricted to financial circles. I believe that change without adequate forethought and haste without direction result only in hurt and dislocation to many people. This legislation may be good in its intent but I believe it is very bad in its execution. However, the Opposition acknowledges the need for change and the need for this legislation. Therefore, it has the support of the Opposition.