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Tuesday, 5 June 1984
Page: 2484

Senator JACK EVANS —I address my question to the Minister representing the Treasurer. Given the recent liquidity crisis experienced by the Continental Illinois Bank in the United States of America and the continuing uncertainty surrounding major United States of America and European banks which are faced with the prospect of some Third World debtor nations defaulting on repayments of loans which could easily exceed $100 billion, is the Government still giving serious consideration to the recommendation of the Martin Committee of Inquiry into the Australian Financial System to allow some four to six foreign banks to operate in Australia? Is the Government aware that one of the United States banks allegedly under a cloud last week, Manufacturers Hanover Ltd, is currently negotiating with some Australian building societies with a view to making a bid to gain entry into Australia as a bank? What precautions could the Government take in order to ensure that the banks admitted to operate in Australia are not vulnerable in the event of a massive default by a series of debtor nations, given that these banks are unlikely to divulge detailed or accurate data concerning their foreign loans? Does the Minister believe that the security currently enjoyed by depositors in Australian banks should be sacrificed in order to achieve the possible benefits of greater competition from foreign banks ?

Senator WALSH —Senator Evans has drawn attention to a very serious international economic problem.

Senator Gareth Evans —Senator Jack Evans.

Senator WALSH —So that there is no confusion about the matter, I have been requested to say that it was Senator Jack Evans. He has asked whether, if a number of international banks should get into trouble, should become insolvent, there would be any potential threat to foreign banks operating in Australia. I have not discussed this question with the Treasurer for some time so any answer I give now will have to be taken as conditional in regard to both verification and the possibility that the Treasurer may feel like adding to it. My understanding of the proposal that the Treasurer and the Government were considering is that if foreign banks were allowed to operate in a broader sphere than they currently operate-of course a number of foreign banks already operate in Australia as merchant banks-and can operate in the same way as trading banks do, they will be required to observe the same sorts of prudential requirements as the existing trading banks do. So if that is correct, I think the answer to Senator Evans's question is that, even if banks operating in Australia ran into financial troubles in their operations in other countries, sufficient checks and safeguards would be built into the Australian system to ensure that Australians who had funds deposited with those banks would not have them placed at risk. As I said, I will check the matter with the Treasurer to see whether he has anything either to clarify what I have said or to add to it.