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Wednesday, 1 April 1987
Page: 1862

Mr SINCLAIR —With the same agitated demeanour, may I express my thanks to the Prime Minister for his cappuccino hospitality. I ask the Treasurer a question. Was Monday's release of up to $900m in bank reserves designed to give greater flexibility in housing lending? Given the state of the farm sector and the fact that it has been nearly crippled by this Government's continued high interest rates policy, and knowing that the reserve assets ratio remains at 13 per cent of deposits, will the Treasurer now make a similar release to help Australia's family farmers?

Mr KEATING —I think that the Leader of the National Party of Australia misunderstands the nature of the so-called release that he alluded to. There has been some discussion in the Press of late about changes to the statutory reserve deposit arrangements between the trading banks and the Reserve Bank of Australia. In that case the Reserve Bank holds, at a diminished interest rate, trading bank assets. The liquid and government securities ratio of the savings banks is entirely a different matter. The LGS ratio is the requirement of the savings banks to keep a certain proportion of their assets in essentially government paper. In other words, it is their money; it is money which is held not by the Reserve Bank but by the banks in securities other than housing. It was and is the Government's view that as the securities structure of the savings banks is sound, because it is invested mostly in mortgages, we could afford in prudential terms to have a lower LGS requirement on the savings banks than the par requirement on the trading banks.

We are not releasing anything; we are saying to the savings banks that if they wish to have a little more flexibility in the investment of their funds or the placement of their assets, they can shift some of their assets out of government paper into housing, which would allow them over time, as they dispose of government securities, to invest about another $900m in housing assets. But we are not freeing up any funds to them. It is their money which, in relation to the SRDs, is an entirely different matter.

The right honourable gentleman asked me about the farm sector. The view was being put by the farm community recently that if the Government were to reduce the SRDs in lieu of an extension of the savings bank subsidy, that reduction in the SRDs, that enhanced profitability for the banks, ought to be shared with the farming community and not go just to housing. I understand that point but the Government did not do that. It did not change the SRD structure. This has all sorts of other monetary policy implications and asset ratio implications. What the Government did was to change the LGS ratio of the savings banks. In other words, the savings banks are a little freer to invest their own funds into housing away from government securities. So any implication to be drawn about the farm sector is wrong. There is no implication for the farm sector. My colleague the Minister for Primary Industry has often been through the structure of the farm sector debt and I have nothing to add to what he said about the structure of that debt.