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Thursday, 26 February 1959

Mr HAROLD HOLT (HigginsTreasurer) . - I move -

That the bill be now read a second time.

I compliment the honorable member for Leichhardt (Mr. Fulton) on having successfully endured the ordeal of his maiden speech. I could not have wished for a more appropriate introduction to this series of bills relating to banking reform than to have his urgent request put to us at the conclusion of his speech that we go ahead with the job of developing Australia. I sincerely believe that these banking reforms which I now commend to the House will assist us in that vital and important task.

Honorable members will be aware that during the last Parliament a series of measures was twice passed by the House for the purpose of reconstructing the Australian banking system in major ways. The measures that were then passed did not, however, become law because of their rejection in another place.

In the course of the recent federal election campaign, the Government affirmed its determination to proceed with these banking proposals if returned to office. The fact that we were so returned with majorities in both Houses, and indeed with a record majority in this House of Representatives, must be accepted as a broad endorsement by the Australian people of the banking reforms we had proposed.

In the interval since our proposals were rejected for the second time by the other chamber, we have taken the opportunity to re-examine the language of the legislation. We have also examined fully and carefully proposals which have come to us from various quarters for some amendment of the original bills. As I shall explain in the course of my second reading speeches, and during discussions in committee, a few changes have been made. Some of these are merely technical in character, made necessary by the passage of time since the earlier bills were presented, or made desirable by drafting requirements. Others make no change in the structure we had previously erected, but define our intentions rather more precisely. The fact that this House is now being asked, for the third time, to adopt our banking proposals along substantially identical lines to those put forward in the original bills is in itself a tribute to the soundness and thoroughness of the heavy pioneering work devoted over a long period to this question of banking reform by my distinguished predecessor, Sir Arthur Fadden. I should like Sir Arthur to know that he is very much in the minds of his former colleagues of the Parliament as we proceed with our discussion of these measures.

The operation of the banking system goes to the very root of the national well-being, and it is vitally important that the system should at all times work with maximum efficiency and harmony. The Government remains convinced - and is fortified in this conviction by the verdict given by the people at the recent election - that reconstruction of the system is essential if its fully efficient and harmonious operation is to be assured. Consequently, the Government has decided to reintroduce its banking legislation proposals to the present Parliament, and the bill now before the House is the first of four major measures that are designed to give effect to the Government's proposals. In addition, I shall later be introducing ten minor bills for the purpose of making necessary amendments to other acts of Parliament as a consequence of the proposed new banking structure.

I do not propose to dwell on the reasons why the Government believes that the banking system should be reconstructed. These reasons were admirably and fully explained by Sir Arthur Fadden in the second-reading speeches he gave when first introducing the legislation on 24th October, 1957. I commend those speeches, which are reported in pages 1765 to 1782 of " Hansard " for the last Parliament, for careful study by all honorable members.

Except for two or three minor changes and some other changes of a purely technical and drafting nature, the legislation is in the same form as that in which it was passed by the House in the last Parliament. For the convenience of honorable members, I have had a statement prepared showing the precise nature of the changes which have been made, and copies of this statement will be made available.

The following is a brief general description of the main proposals embodied in the legislation: -

1.   The separation of the central bank from the present Commonwealth group of banking institutions and its re-constitution, together with the Rural Credits Department of the Commonwealth Bank, as the Reserve Bank of Australia. The Reserve Bank will function only as a central bank and will not be responsible for the administration of the retail banking business carried on by the Commonwealth Trading Bank, the Commonwealth Savings Bank, and the Mortgage Bank and Industrial Finance Department of the Commonwealth Bank.

2.   The establishment of a Common wealth Banking Corporation, under a new board and with a separate staff, to be responsible for the administration of the Commonwealth Trading Bank of Australia, the Commonwealth Savings Bank of Aus tralia- and a new institution to be called" the Commonwealth Development Bank of Australia. The Commonwealth Development Bank will comprise basically an amalgamation of the present Mortgage Bank and Industrial Finance Departments- of. the Commonwealth Bank, with some increase in resources, and with anew charter for' assisting the development of worthwhile enterprises in the. field- of both primary and secondary industry which would otherwise be unable to obtain the necessary finance on reasonable and suitable terms and conditions.

3.   The replacement of the present special accounts system with a system- of. statutory reserve deposits.

The Reserve Bank Bill is related to the first of these main purposes - namely, the establishment of the Reserve Bank of Australia as the central bank for the Australian monetary and banking system and as an institution that will not be directly associated with the conduct of retail banking business.

Under the bill, the body corporate now known as the Commonwealth Bank of Australia is continued in existence as the Reserve Bank. The Reserve Bank will have wide banking powers of a general character such as the Commonwealth Bank now has, but will not be empowered to carry on business otherwise than as a central bank. Like the Commonwealth Bank, it will control the note issue and will act as banker to the Commonwealth insofar as the Commonwealth requires it to do so.

The detailed framework of central bank controls that the Reserve Bank will be empowered to exercise over the banking system at large is provided for in the Banking Bill, which I shall be introducing shortly as a replacement for the present Banking Act. Except for the substitution of a system of statutory reserve deposits for the present special accounts system, the Reserve Bank's powers in relation to the banking system will be essentially the same as those now exercised by the Commonwealth Bank.

The Reserve Bank will take with it the Rural Credits Department of the Commonwealth Bank, whose function is the making of advances to marketing bodies to assist the marketing of primary produce or the processing or manufacture of primary produce. The attachment of that department to the. central bank, is necessary because the. department requires very large amounts of central bank accommodation to meet its. seasonal requirements for finance. The bill also provides for the capital of the department to be increased by £2,000,000 from central bank reserves, bringing it to a total of £4,714,000.

The provisions in the bill relating to the Reserve Bank Board are similar to those in the present Commonwealth act governing the constitution of the Commonwealth Bank Board. The Reserve Bank Board will comprise the Governor and Deputy Governor of the bank, the Secretary to the Treasury, and seven other members appointed by the Governor-General. These seven other members must be persons who are not associated with any other bank, and at least five or them must be persons who are not officers of the Reserve Bank or of the Commonwealth Public Service. The Governor and the Deputy Governor will continue to be chairman and deputy chairman respectively of the board. Under the Banking (Transitional Provisions) Bill, which I shall be introducing later, the Governor and the Deputy Governor of the Commonwealth Bank and the members of the Commonwealth Bank Board who are in office when this legislation comes into operation will continue to hold corresponding offices with the Reserve Bank.

The board will determine the policy of the Reserve Bank and ensure that effect is given to that policy. It will have the duty, as the Commonwealth Bank now has, of ensuring, within the limit of its powers, that the monetary and banking policy of the bank is directed to the greatest advantage of the people of Australia, and that the powers of the bank are used to promote the stability of the currency, the maintenance of full employment and the economic prosperity and welfare of the people of Australia. There are also provisions, similar to those in the present act, which will require the board to keep the Government informed regarding the monetary and banking policy of the bank and which, in the event of a difference of opinion between the board and the Government on that policy, will give the Government, subject to the observance of certain procedures, including the tabling of explanatory documents in both Houses of the Parliament, an ultimate power to determine the policy of the bank.

The bill provides for the constitution of a staff service for the Reserve Bank. Provision for the allocation of officers of the existing Commonwealth Bank Service to the Reserve Bank Service is contained in the Banking (Transitional Provisions) Bill which I shall be introducing later.

The bank will have fairly wide and flexible powers ot staff- recruitment and management. Such powers are considered to be necessary because the Reserve Bank will be a highly specialized institution and it will need,- particularly in some of its sections, staff of exceptionally high calibre and standards of training. Moreover, it will not have at its disposal the large staff service that is now available to the Commonwealth Bank.

As an essential part of the separation of the centra] banking and non-central banking activities of the present Commonwealth group of banks, there is a provision in the bill that the head office of the Reserve Bank, which is to be in Sydney, shall not, after a reasonable period of time, be in the same building as the head office of the Commonwealth Banking Corporation or any other bank.

The bill also provides for certain changes of detail as compared with the existing Commonwealth Bank Act, but none of these involves major questions of policy and they can be better explained when we reach the committee stages of the bill.

Under the provisions that I have outlined, and those in the Banking Bill, the Reserve Bank will be a worthy successor to the Commonwealth Bank as Australia's central bank. With status enhanced by the fact that it will no longer be directly associated with the conduct of retail banking business in competition with the private banks, and with its legal powers for regulation of the banking system unimpaired, the Reserve Bank will take its place at the head of a banking system that will be freed from earlier sources of conflict. With the conviction that the bill, together with the measures I shall introduce shortly, will provide the bank with new opportunities for still greater service to the nation, I commend the Reserve Bank Bill to the House.

Mr Calwell - Arrant nonsense! If I may say so, Mr. Speaker, the debate will be resumed by the Leader of the Opposition when he returns.

Mr HAROLD HOLT - The Deputy Leader of the Opposition made the comment, " Arrant nonsense! " I was not sure whether that was an introduction to what he was about to say or whether it was something of another character.

Mr Ward - Do not clown!

Mr HAROLD HOLT - Well, I like to fit in with the company around me.

Debate (on motion by Mr. Calwell) adjourned.

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