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Friday, 10 May 1985
Page: 1732

Senator PETER RAE(10.47) —It has been indicated that the Banks (Shareholdings) Amendment Bill 1985, which we are now debating, is part of a package of legislation which will be necessary to enable the expansion of the number of banks in Australia through the introduction of foreign banks. One of the steps being taken in this respect is that the present Act limits any one shareholder or group of related shareholders to less than 10 per cent of the voting shares of a bank. The reasoning behind this is that a widely dispersed shareholding is a good prudential measure which will help depositors and that, I would think, would not be widely argued. However, to assist in the introduction of foreign banks and in the development of Australian banks, it is regarded that some change may be made and, therefore, it will provide for an increase in the size of individual shareholdings, which may be held without the Governor-General's express approval, from 10 per cent to 15 per cent. That is a significant and an important change in the ramifications which it will have as to the facilitation of the operation of the banks and it is regarded as still providing a sufficient protection to depositors in relation to those banks.

There is also provision for the Governor-General to grant exemptions to the limit when it is in the national interest to do so. That is something which will be done only in special circumstances and will be made known when it is done. It requires the Treasurer's approval for changes in shareholdings in a bank which takes new or existing shareholdings of a person beyond 10 per cent but within the 15 per cent threshold, and it generally allows a more flexible approach to the provisions of the existing Act. This is a Bill which the Opposition supports as part of the total package of deregulation of the financial sector. I think it is important for me to talk briefly about the history of the deregulation of the financial sector to be able to place this in its context.

The Campbell Committee of Inquiry into the Australian Financial System was composed of some extremely well known and highly qualified and experienced people in the financial system. The Committee reported on 29 September 1981 making a wide cross-section of recommendations for the freeing up of the Australian financial system and for making it more competitive, more efficient and less costly. The recommendations could hardly be said to have been implemented in undue haste. It is now May 1985 and those recommendations were brought down in September 1981. The recommendations would not have taken the Australian financial world, even the whole financial world, or the Australian public by surprise. The Opposition, when in government, had instigated the inquiry. A program of deregulation in relation to the financial system was part of the proposals for the development of the Australian financial system of the former Treasurer, Mr Howard. It was part of the former Government's planning in relation to the development of the Australian economy. At the time there were those honourable senators, now in the present Government, who held the sort of views which have just been expressed by Senator Jack Evans and which I can describe only as views which are held by people who are frightened of the dark. They are the sort of views which are as outmoded as those views that we exist in a trading world in which we can be an island unto ourselves.

We exist in a trading and financial world economy, whether we like it or not. If we want to participate and be successful we have to recognise the fact that our systems must be made consistent and work with the systems that operate in other parts of the trading and financial world. If we do not do that we fail at our cost. I think it is important that having listened to the quite incredible statements by Senator 'I am frightened of the dark' Evans, I should read some sections of the 1981 Campbell Committee report. Paragraph 25.7 states:

Underlying the discussion in many parts of this Report is the Committee's firm belief that adequate and vigorous competition is an essential requirement for the efficient operation of financial markets. The Committee has reason to doubt that the level of competition in banking is at present adequate to ensure maximum efficiency and maximum benefits for all consumers of banking services--

I pause there to say that what had been happening was a contraction in the number of banks and the amount of competition. Quite understandably, there had been a move for amalgamation in some of the existing Australian banks. Whereas 100 years ago there were a very large number of banks in Australia we had then reached the stage where the number of trading banks were very few and the number of savings banks had not been increasing. The major development that had taken place was, I suppose, among the credit unions and pension funds. I return to the development foreseen by the Campbell Committee. It stated in paragraph 25.11 that:

Foreign banks offer a more immediate prospect of providing an effective competitive stimulus (particularly in the shorter term following deregulation of the banking system) than the potential domestic entrants because they:

already have the resources and banking expertise (especially in international trading and foreign exchange dealings) necessary to establish wide-ranging banking businesses in Australia;

are often operating non-bank financial intermediaries in Australia (in some cases with a branch network, although less extensive than most banks), and thus, like many large non-bank financiers, face lower economic barriers to entry than some other potential domestic entrants;

have internationally recognised standing as banks and should readily command the confidence of the Australian community; and

are less likely to be deterred by the risks and uncertainties, and possibly less than average profit levels, associated with the early establishment years.

The report continued in paragraph 25.15:

It is true that foreign banks would have the advantage of a broad customer base in their home country and, internationally, greater familiarity with other economies, access to foreign capital, and the opportunity to specialise, and exploit their unique skills in limited market segments. On the other hand, Australian banks would not be at a competitive disadvantage over the long term; they would retain their own areas of comparing advantage-their better knowledge of local markets and established customer base-while at the same time sharpening and maintaining their skills in the international banking and trading finance. They would also have a strong incentive to adopt and maintain any appropriate new financing technology introduced by their new competitors from overseas and would be able to compete much more aggressively than they have in the sheltered, regulated environment of the past. Many Australian banks have been competing successfully with foreign banks in international capital markets.

One need only refer to the change of name and policy behind the adoption by the former Bank of New South Wales of the name Westpac to see the sort of conceptual changes taking place in relation to Australian banks. The name Westpac, an abbreviation of Western Pacific, is an indication that it is expanding and developing its activities into the international field. Expand our activities internationally is something we need to do. There are two ways of doing this: Firstly, by encouraging and facilitating in any way we can our domestic banks to make that type of expansion and, secondly, by introducing to Australia banks which are already participating in the international finance world. Therefore Australia gets a double advantage with deregulation and the introduction of foreign banks. The Campbell report stated in paragraph 25.17:

The Committee's view that a gradual entry of foreign banks, as banks, need not be disruptive to the banking system receives some support from the experience of finance companies in the 1970s: relatively free entry has not had an excessively destabilising effect.

Paragraph 25.20 stated:

Nor does the Committee accept that the entry of a number of foreign banks would weaken the impact of monetary policy, so long as the main instruments used are open market operations and a variable bank reserve requirement.

. . .

The Committee believes, therefore, that the concern about the loss of monetary control following foreign bank entry has been overstated.

Paragraph 25.23 stated in summary:

provided the appropriate prudent funds management standards are maintained in order to protect the security of Australian depositors, the Committee cannot support the present embargo on the participation of foreign banks, as banks, in Australia.

At paragraph 25.50 the Committee recommends:

(a) Foreign bank participation in domestic banking should only be restricted through the number of licences granted.

(b) Banking licences issued to non-residents should carry no encumbrances additional to those attaching to licences held by residents; both resident and non-resident-owned banks should have the same privileges and responsibilities.

The Campbell Committee report was supported by further investigation and consideration of the matters involved. Far from having the effect of forcing up interest rates I believe there can be no doubt at all that the competition which will be engendered by the introduction of the new banks to Australia-some of them being introduced for the provision of particular services because they have particular skills and capacities-will be beneficial. Not all of the banks will be providing the sort of services already provided by most of the trading banks in Australia. However, some of them will be coming with a view to providing specialty expertise and facilitation of financial and trading transactions between Australians and those in other parts of the world. In bringing that efficiency and experience and those contacts they will provide a competition that will make for a lowering of the cost rather than a raising of the cost to users in Australia. I believe that the Campbell Committee report can be accepted when it says that deregulation and the entry of foreign banks will have the effect of bearing down on interest rates and freeing up the amount of money available to home loan borrowers, as well as other borrowers, when fully implemented.

I find quite incredible some of the things that were said by Senator Jack Evans as to why interest rates have gone up at the moment. They were so ludicrous that they do not warrant my spending any time dealing with them.

Senator Walsh —When you stand on your head, the world is upside down.

Senator PETER RAE —Senator Walsh has given one description which might possibly explain the view that was expressed. I simply say that I do not propose to take the time to respond to those comments. The reason why interest rates have gone as high as they have is far more to do with trade, it is far more to do with the American economy; it is far more to do with the mismanagement by the present Government and the loss of confidence and loss of authority of the present Prime Minister (Mr Hawke) than with the potential entry of foreign banks. I do not need to emphasise those points any further.

The Opposition will support this Bill as being part of a package which it believes is highly desirable and which it has supported for the reasons that are set out in the Campbell report and to which I have adverted. These measures will, we believe, make the Australian economy a more effective part of the world trading and financial economy and will provide services to Australian depositors, Australian investors, Australian traders and Australian borrowers at terms and conditions which are far more competitive than those that have existed.

I take the opportunity to wish our existing banks well in their fight to retain their market share against the competition that will come. I also look forward to seeing the competition, particularly in the specialist areas, that will come from those 16 banks it has been indicated will receive licences. As a personal view, the selection of the 16 banks was not quite what I would have preferred in one or two instances, but the selection was broad and it did represent our trading partners and our financial associations, both historically and in present terms. It was a sensible selection in terms of the breadth that was covered and the recognition of the history of associations which Australian industry, commerce and finance have with other countries.

The Opposition supports the Bill and is glad to see that we are developing into the modern world. This is one of the necessary steps and we applaud the Government's action in overcoming the attitudes of the troglodytes within its Party who did not want to see any such action taken. I congratulate those who were able to win the argument and to ensure that action has been taken along the lines that were started by the former Government and will be carried on by the next Government after the next election, when we will be back in office and will be able to complete any of the necessary steps that have not yet been taken by the present Government.