Ms BURKE (8:46 PM) —I rise today to speak on one of the bills before the House, the Financial Sector (Transfers of Business) Bill 1999 . The ambiguity of this bill necessitates my rising to speak tonight on the threat it poses to the current four pillars policy. I stated in my first speech in this House that I would take all opportunities to speak against any further erosion of the four pillars policy. It is with grave concern then that I, like many others, note the possibility that the bill is removing the four pillars policy by stealth.

This bill is part of the government's long-awaited second round legislative response to the Wallis financial system inquiry. It should not be forgotten that one of Wallis's recommendations was the removal of the then sixpillars policy. At the time the Treasurer stated that the removal of regulation over the four major banks would not be considered until there was greater competition in the market, especially in relation to small business lending and new entrants in the financial sector.

I rise today to challenge the government to go on the record and state that the measures in this bill are not there to erode the four pillars policy. In the minister's second reading speech he clearly states, `It is also good to facilitate change in the industry.' Change for change's sake is not necessary. Whilst Labor welcomes a progressive, dynamic, robust industry, it does not support change driven purely by a negative cost cutting agenda, simply designed to increase already massive profits. Concern about the bill's intent was canvassed in the Financial Review on Monday, 15 March 1999 in an article by Hans van Leeuwen. It said:

Banks have gained a new and simplified way to merge with each other under new Federal Government legislation tabled in Parliament last week.

Under the new rules, one bank can simply transfer all its liabilities and assets to another, an almost impossible task under the present regime.

The only proviso is that the Australian Prudential Regulation Authority and the Federal Treasurer must both give their imprimatur to the merger.

And, further on:

The legislation is part of the package that is moving credit unions, building societies and friendly societies to the APRA umbrella.

Those institutions already have the so-called "transfer of business" rules and the new legislation extends those rules to banks and insurance companies.

. . . . . . . . .

The rules may also circumvent the Australian Competition and Consumer Commission.

The legislation says APRA can choose to consult with the ACCC on the rules, but does not have to.

Clearly I am not alone in my concerns over the intention in the bill. The Minister for Financial Services and Regulation did respond in a letter to the editor of the Financial Review on Monday, 22 March 1999 and stated:

The Government has not changed its position on bank mergers policy as may have been inferred from "Federal legislation makes bank mergers easier" . . . The proposed transfer of business mechanism is an additional prudential tool available to facilitate a quick and effective transfer of business to protect depositors or policy owners where a financial institution is in distress.

Although the minister keeps asserting that the bill is a `tool for protecting depositors where their financial institution is in financial hardship', the mechanisms of the bill do not limit the scope for voluntary or compulsory transfers to cases where institutions are in financial difficulty.

The case for keeping the four pillars policy is sound and based on three key aspects: first, and most notably, jobs; second, public opposition to its removal; and third, no net benefit from further concentration of the financial industry in Australia. Turning to jobs first, employment in the finance industry is concentrated in the major banks and the leading life offices. McIntosh Baring, in its annual report Australia's banks, a ready reckoner in July 1996, suggests that 35,000 jobs would be lost as the result of an amalgamation process which would create two major banks. Allan Fels, Chairman of the ACCC, warned that any big bank merger would face a tough competitive test. In the Financial Review of 27 November 1998 he said:

If the ACC were asked to consider the merging of four pillars into three, it would also look at the competitive outcome of a two-pillar policy, because one merger among the big four banks was likely to be followed by another.

In the three years to 1997 there have been 23,000 retrenchments in the industry. This has combined with the general decline in employment numbers in some parts of the sector, a decline in full-time employment, rising part-time and casual work and increased pressures on remaining staff—all creating incredibly high levels of insecurity in the work force. On the issue of jobs alone the government should commit to the retention of the four pillars policy. The loss of 35,000 to 40,000 jobs Australia-wide would have a devastating impact on unemployment levels and should not be contemplated by this or any government.

The second reason for keeping the four pillars policy is public opposition to its removal. The public has quite clearly indicated that it sees no benefit from big bank mergers and that it would be opposed to any further concentration in the industry. I quote from an article in the Financial Review on Friday, 27 November 1998 by Jeremy Flint. It stated:

The Australian Financial Review has obtained a copy of Newspoll's report to a confidential client detailing the results of interviews with 1,200 people across the country on bank mergers. It concluded the political risks are "very high" for any Government or political party supporting mergers among the big four banks.

"A third of the general community would be less likely to support a party prepared to allow mergers," Newspoll's executive summary said.

. . . . . . . . .

Around 60 per cent of people polled on big bank mergers believed that customer service would be worse if they went ahead, 61 per cent expected higher fees and charges as a result, and 78 per cent expected fewer jobs.

"An overwhelming majority of Australians expect only negative outcomes from bank mergers," Newspoll's report said. "These opinions are very firmly held."

The third reason is that there is no net benefit from further concentration of the financial industry in Australia. The potential benefits to be derived from big bank mergers are equivocal at best, yet the major banks seem so sure that mega mergers are the only way forward for the Australian financial system. This is indicated by the beliefs of one of the retiring CEOs of Australia's largest bank, which has overseen a share price increase from $4 to $27—

Mr Hockey —That's wonderful.

Ms BURKE —It's fantastic—and profit increasing from $7.56 million to $2.5 billion. Can he still be disappointed that he has not secured a merger? This suggests either that he may retire with a healthier nest egg or that there is some evidence that mergers would pay off. Yet the existing evidence does not seem to support this belief. A 1995 Deloitte Touche Tohmatsu report on the future of retail banking found that banks grew less efficient as they grew larger. The conclusion drawn is that the retail banking industry is currently not susceptible to scale economies and that banks of different sizes can coexist and be profitable.

The Financial Systems Inquiry Final Report of March 1997 summarised the evidence on efficiencies derivable from bank mergers:

. . . the evidence from studies on bank mergers and efficiencies to date has been at best equivocal on whether or not there are efficiency gains to be derived from mergers and on the whole points to there being no correlation between bank mergers and improved efficiency—although it is clear that some mergers do result in efficiency gains.

The Wallis report went on to say that this is not to say that cost savings are not possible, but in general it is efficiency gains which are considered to be of most benefit to the community and to be in the longer term interest of the performance of the industry.

Whilst it is clear that big bank mergers may produce cost reductions—and this is universally at the expense of jobs—this does not mean they will deliver efficiencies which can be passed onto customers through fee reductions, increased services, lower interest rates and the like. Cost reduction is achieved primarily through staff reductions, closure of branches, data processing and operations. One study found that the reduction in staff costs accounted for over half of the total cost reductions. On the whole, the evidence does not suggest that mergers are a guarantee of success. The banks have made numerous assertions that they can survive only if the four pillars are removed and that the sky will fall in if they are barred from mergers. This is not supported by research.

The recent Canadian experience subjected the arguments for mega bank mergers to a high level of scrutiny by a number of bodies. The evidence before the task force included, firstly, a 1997 survey of 23 different studies of mergers which found that, for large multiproduct banks, growth in size does not produce any important efficiencies of scale or scope; secondly, the opinion of a European professor of banking and finance that overall institutional business fails to enhance profitability systematically; thirdly, a study by Mercer Management Consulting of 500 US and Canadian mergers since 1990 which found that two out of three mergers fail as the new entity underperforms in the industry. The final report of the task force notes the chairmen of the banks seeking mergers were invited to present evidence which refuted the `indications from the international evidence that merges of this sort are unlikely to generate economies of scale or scope'. They provided no persuasive, substantive responses. I challenge the Australian banks to demonstrate the need for mergers because, of all the studies I have read and those I have quoted in my address to the House, none actually categorically make this claim.

The bill proposes several changes which could in effect erode the four pillars policy. The bill removes the key elements of current protection in the four pillars policy: the removal of the requirement for the Treasurer to approve the merger and the role of the ACCC in assessing the effect of a proposed merger on competition. On the removal of the Treasurer's consent, section 63 of the Banking Act 1959 as it currently stands requires the Treasurer's consent before an ADI can amalgamate, enter a partnership with another ADI or enter a reconstruction. This is an important legislative aspect of the four pillars policy, as it gives the Treasurer the right to approve or refuse a merger between the big four banks on the basis of public interest. It is important that the ultimate political responsibility rests with the government for a decision in which all citizens have a substantial interest, both economic and otherwise. The Financial Sector (Transfers of Business) Bill 1999 removes the necessity for the Treasurer to consent to either a voluntary or compulsory transfer. The Treasurer could stand by and watch the four pillars tumble, with no power to prevent two of the major four banks effectively merging. The requirement that the Treasurer has to consent under the Banking Act to a transfer must be maintained at all costs.

I turn now to the role of the ACCC in assessing the effect of a proposed merger on competition. The bill does not require APRA to consult with the ACCC. It may do so if it chooses, but there is no compulsion. The role that the ACCC currently performs in assessing the effect of a proposed merger on competition and on public benefit grounds must remain a key feature of the regulatory structure of the finance sector. Any move away from the current enshrining of these obligations in the acts to regulation is a watering down of the current protection and leaves one wondering if this bill is the beginning of the end for the four pillars policy. I reiterate the warning of the Finance Sector Union about the massive job losses that this would create and call on the government to articulate its position on the four pillars policy.