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ALP manipulated interest rates before 1987 Federal election



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ALP MANIPULATED INTEREST RATES BEFORE 1987 FEDERAL ELECTION

Evidence from the Jacobs Royal Commission into the State Bank of South Australia (SBSA) prove beyond doubt that Premier Bannon, on behalf of the ALP, manipulated the interest rates of the State Bank to benefit the ALP in the 11 July 1987 federal election.

The big question is: Was the then Treasurer, Mr Paul Keating, aware of this interest rate manipulation?

Indeed, did Mr Keating initiate the manipulation of interest rates? Did he call up Mr Bannon to stop interest rate rises to improve the ALP's federal election prospects?

The attached copy of pages 120-121 of the Jacobs Report notes that:

. At a meeting between Mr Bannon [the "Treasurer"] and the State Bank on 18 June 1987 to discuss another matter, the Bank advised Mr Bannon of a proposed interest rate increase to take effect from 1 July 1987.

. Mr Bannon immediately took issue with the Bank on this proposal, in part because of the impending federal election which was to take place on 11 July 1987.

. The minutes of the Executive Committee of the Bank of the next day record that it was agreed to defer the proposed interest rate increase because “of the falling interest rate environment".

. However, the report goes on to say that the "minute secretary's notes record a different reason , for postponing what the Bank had decided to do, no doubt on a commercial basis".

. The Report goes on: "The changed decision was said to be in response to the Treasurer's urging the Bank not to increase interest rates until after the election. In evidence the Treasurer confirmed that he had so advised the Bank."

. The Royal Commission concluded:

‘By postponing its decision to increase rates, it avoided the risk of electoral damage to the Government then in office in Canberra, which was of the same political persuasion as Mr Bannorfs Government. For the Bank to take a political stance in private if it perceived such a stance to be to its advantage may well be justifiable; it

is much less so if taken at the behest of the political ally of a government in office, and in conflict with an earlier decision."

22 November 1992 Somerville

Contact: (059) 778412 D211/92

Barrett, reappointed, or their competence. These people brought with them significant personal qualities and skills, but the basic structure of the Board remained substantially unchanged in the face o f mounting evidence that such a structure might no longer have been appropriate.

Quite apart from the perceived need for a Treasury presence — which was still as vigorously opposed by the Board, and Mr Clark in particular — there was a serious question as to whether a 'balanced representative community' structure and the perpetuation of links with the 'old banks' were still appropriate. There is no reason whatsoever to challenge or criticise appointments to the first Board. There was then ample justification for giving it a predominantly transitional structure in order to:

• engender public confidence in the role then envisaged for the new Bank; • maintain community representation in the persons of former members of Parliament from both major parties; • exclude the Under Treasurer (who had been a member of the old

State Bank board and who had played a significant role in the Merger Advisory Group) in order to allay fears that the Bank would be a tool of Government.

However, times had changed. The Bank had been established for three years; its much vaunted commercial independence was being well publicised; and most importantly it had grown under the leadership of Mr Clark at a phenomenal rate into a complex national and international operation in which its home base was no longer predominant. There was a crying need for hard­ headed and diverse practical business and (if possible) banking experience at that level to enable the Board at least to monitor, if not guide, the strategy of the Bank, rather than leave it all to Mr Clark, whom the Treasurer himself perceived to be the driving force, if the Treasurer, for reasons which seemed good to him. chose not to be too closely involved with the course pursued by the driver, n was all the more important to select a Board that was not only

able to bring a wise and informed judgment to bear on the destination, direction, and speed of the driver, but that also had sufficient experience to detect telltale noises in the engine.

That the Treasurer failed to address such issues and decided to maintain the existing structure o f the Board is but a further example o f the extent to which he allowed the Bank itself, through its Directors, to influence his judgment, even in the exercise o f one o f his most important statutory powers.

INTEREST R A TE S .1987

Despite the arm's length approach of the Treasurer, there was a range of other matters involving Bank and Government liaison and cooperation during 1986-87.

At a meeting between the Treasurer and the Bank on 18 June 1987, to discuss the proposed Ayers Finniss incorporation, the Bank advised the Treasurer of a proposed interest rate increase to take effect from 1 July 1987.63 The

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Treasurer immediately took issue with the Bank on this proposal, in part because of the impending federal election which was to take place on 11 July 1987. On the very next day, 19 June 1987, the Executive Committee of the Bank (with Mr Clark presiding) resolved as follows:

Because of the falling interest rate environment, it was considered imprudent to increase home loan interest rates at this stage.

It was agreed to defer the proposed increases in the housing loan interest rates. It was further agreed that ALMAC meet in mid- July to re-assess the situation, with a view of moving

immediately, as appropriate.*4

However, the minute secretary's notes record a different reason for postponing what the Bank had decided to do, no doubt on a commercial basis.6* The changed decision was said to be in response to the Treasurer's urgintfthe Bank not to increase interest rates until after the election. In evidence the Treasurer confirmed that he had so advised the Bank. He said he encouraged the Bank to defer any change because he thought the Bank would be acting, or would

be seen to be acting, politically by implementing its original decision at that time.66

The Bank duly notified the Treasurer of its revised stance on this issue, and the rates were then reviewed after the election as had been arranged.67

It is plain from the above that:

• The Bank reversed a commercial decision to increase housing-loan interest rates, and deferred consideration of the proposed increase until after the July 1987 federal election at the instigation of the Treasurer. • The formal Executive Committee minutes are misleading about the

reasons given for that decision, or at least do not tell the full story. • The Treasurer requested the Bank to review its decision on the expressed grounds that he did not want the Bank to be seen as taking a political stance. It is difficult to understand or justify his reasoning because his request

inevitably did require the Bank to take such a stance. By postponing its decision to increase rates, it avoided the risk o f electoral damage to the Government then in office in Canberra, which was o f the same political persuasion as M r Bannon’s Government. For the Bank to take a political

stance in private i f it perceived such a stance to be to its advantage may well be justifiable; it is much less so i f taken at the behest o f the political ally of a government in office, and in conflict with an earlier decision.

As a postscript, the Bank did in fact reduce some home-loan interest rates shortly after this election. This lends some credibility to the reason for postponement that appears in the Executive Committee minutes, but it does not invalidate the finding that the whole of the evidence compels: that the Bank responded to an initiative taken by the Treasurer to avoid the risk of electoral damage to a particular political party.

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