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Wednesday, 12 October 2011
Page: 11575


Mr BANDT (Melbourne) (11:48): I found myself nodding in agreement through much of the speech of the member for Goldstein, which leads me to wonder why the coalition will not be joining the Greens in opposing this bill. The effect of this bill is enormously significant. There have been some historic votes taken in this place this morning that have rightly gained significant attention in the media. It is disappointing that on the same day we are about to change a fundamental element of the Australian banking system that it does not attract the same level of scrutiny. Fundamentally, today, after this bill passes, depositors will lose top spot when it comes to protection of their deposits in banks. This is a fundamental point that should be on the front page of newspapers because it is significant.

It is said that that will be okay because the government through the Financial Claims Scheme will step in and protect depositors. There are two points. One is that all that is effectively doing is shifting the risk that is currently borne by the banks onto the taxpayers. It is shifting it onto the taxpayers without any recompense from the banks to the taxpayers. In other words, what the banks who are able to issue these covered bonds will get is a reduction in their risk with the government and the taxpayers effectively picking it up for free. Not only that; as the member for Goldstein pointed out, there will also be a class of depositors who have deposits over the amount guaranteed by the Financial Claims Scheme, which may drop to $250,000, who will now permanently in respect of that amount be knocked off the top spot. In other words, if a bank ever goes under, a covered bond holder will be able to front up and say, 'I want you to pay me in respect of my claims before the claim of an Australian who's got more than $250,000 in that bank.' That is something that should be attracting the attention of everyone in this country.

It also said that it will allow banks to access a cheaper source of funding. It will only allow the big banks to do that. The smaller banks have been very clear that the covered bond market is not one that they consider they will be able to access. They have explored perhaps pooling their assets and going together with a number of banks to access the covered bond markets and have basically said it is impractical and will not be doable. In other words, yes, there will be a cheaper source of finance available because it is underwritten for free by the taxpayer; but it will only be the big banks who are able to access that cheaper source of financing. What that is going to do in turn is make the lower ranking securities in that bank—the other sources of finance—potentially more expensive as they now become riskier, knowing that covered bonds are going to sit ahead in the queue of other forms of instruments.

It is said that we ought to feel some comfort because only eight per cent of the bank's assets will be able to be in covered bonds. I note with interest that, if my memory serves me correctly, at the time the government first floated this as an idea the figure they were considering was somewhere around four or five per cent. Obviously, the big banks have got in in the meantime and said: 'Well, no, that's not enough; we'd like a bit more, thank you. We'd like up to eight per cent of our assets guaranteed by the taxpayer at no charge to us.' And they have got it.

This comes at a time when smaller institutions have been making the complaint in the media and elsewhere that the promised support to them from the government has not been forthcoming in the way that it was proposed. In other words, we have here yet another measure that is going to make the market dominance of the big four banks that much easier to hold, because they will be able to access a cheaper source of funding with taxpayer support that other banks will not. It is going to add to the concentration of assets in the Australian banking industry at the top end without any countervailing measure on the other side. It is no wonder that at the moment the Australian banking sector is at its most concentrated for a hundred years and this bill is only going to entrench that. When one looks at the nature of the security one sees it is obviously a security that is underpinned by charges over houses. In other words, what we are about to see is a massive expansion of overseas borrowing to fuel the domestic property sector at a time when other sectors of the Australian economy talk about how it is increasingly difficult to find finance. One wonders why it is that we think now is the time to give free support to the big four banks to go and expand the domestic property sector. We do have, as others have noted today, a too-big-to-fail policy with respect to the big four banks and this is another pillar of it.

The view of the Greens is that we should call a spade a spade. If we are going to have a too-big-to-fail policy, and if we are going to be providing support to these big four banks that allows them not only to get through the financial crisis but also to increase their profitability and increase their market dominance after the financial crisis at taxpayer expense, then we should be asking them to give a commensurate response to the taxpayer: to make a contribution in the form of a too-big-to-fail levy if we are going to continue to provide this support. As the member for Goldstein pointed out, it is not only that we do not ask for a levy but also that, when you look at the wholesale funding guarantee, for example, we give the big banks a leg-up. We have said to the big banks: 'Yes, we will give everyone access to wholesale funding but we will make it cheaper for the big four banks,' and then we wonder why at the end of the financial crisis it turns out that they have increased their market share.

The Greens will not be supporting this bill and I will be asking that our dissent be recorded. This is a day when the Australian depositor gets knocked off the top spot and the public is asked to bear an enormous share of risk simply so that the big banks can access finance cheaper and we get nothing in return. There will come a day when depositors who have amounts over and above that guaranteed by the financial claim scheme find that they are no longer able to have first claim on a bank's assets and this bill will be the reason, and for that reason we do not support it.