Govt not contemplating a people's bank


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08-07-2009 12:22 PM


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Radio National


08-07-2009 12:22 PM



08-07-2009 01:27 PM

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2009-07-08 12:22:06

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CAVE, Peter


GANS, Joshua

BELL, David

KING, Stephen

RYAN, Peter, (journalist)


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Govt not contemplating a people's bank -

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Govt not contemplating a people's bank

Peter Ryan reported this story on Wednesday, July 8, 2009 12:22:00

PETER CAVE: The growing power of Australia's big four banks has sparked a major push for greater
competition that could send banking back to the future.

Six influential economists want the Government to back a "people's bank" where Australians could
deposit money at the post office and have it managed by the Future Fund.

While banks say they'd co-operate with any inquiry, they argue that the plan could actually reduce
competition and push building societies and credit unions to the wall.

Here's our business editor Peter Ryan.

PETER RYAN: More than 18 years ago, back in the last recession, Australia said goodbye to what
could be described as a people's bank when the government owned Commonwealth Bank was floated on
the share market.

Fast forward to 2009 - Australia's banking system is surviving the global financial crisis - but it
seems what's old is new again.

JOSHUA GANS: It is the idea that maybe we should have a government provided backstop with
affordable accounts and affordable home loans that gives an option for people.

PETER RYAN: Professor Joshua Gans of the Melbourne Business School is one of six economists who
think the big four banks have been dining out on the Government's deposit guarantee and access to
AAA credit rating to raise capital on global markets.

Second tier banks and mortgage originators have been swallowed up in the credit crunch - leaving
the Commonwealth, Westpac, ANZ and the National Australia Bank to dominate a tighter playing field.

Joshua Gans says a government back people's bank would hit the banks where it hurts, by creating
more competition for all important deposits.

JOSHUA GANS: Having a government presence in the banking system, whether by ownership or by some
other means, is something that we think should be investigated carefully.

PETER RYAN: Do you think that a people's bank would do anything to break the massive power that the
big four banks have at the moment?

JOSHUA GANS: What a government presence could do as a owner of a banking institution is provide
that backstop competition and that could have, that could discipline the larger banks in a way that
open markets may not currently be able to do.

PETER RYAN: In an open letter to the Treasurer, the economists argue that a people's bank would
operate like the old Commonwealth Bank, with Australia Post outlets used to take deposits which
would be managed by the Future Fund.

Professor Stephen King of Monash University also signed the petition, and he says it's not such a
radical idea.

STEPHEN KING: The history in Australia shows that people's banks have been pretty successful and
for most of our history actually, people's banks or state owned banks and federally owned banks
have been an integral part of our banking system.

It is actually only the last, oh, 20 years that we haven't had government owned banks operating
side by side with the private sector in Australia.

PETER RYAN: But the Treasurer Wayne Swan doesn't seem keen to revisit the past.

In a statement he said the notion had not been contemplated by the Government and for good reason,
according to David Bell, chief executive of the Australian Bankers Association.

DAVID BELL: A people's bank would place enormous pressure on building societies, credit unions,
smaller banks and other smaller lenders and that can't possibly help their situation.

PETER RYAN: David Bell says the result would reduce competition and threaten the people's banks of
the 21st century.

DAVID BELL: You can imagine some sort of Kiwi bank or equivalent here in Australia, would operate
through Australia Post which would have vast network which would compete very heavily with these
small institutions.

You would also imagine that the bigger banks would be able to absorb any impact to a far greater
extent than the smaller institutions would.

So we are not sure it makes sense and we also have to remember that the Australian banking system
is quite possibly the envy of the world along with Canada. We have a strong and secure banking
system that has survived the worst of the global financial crisis. Why try and change the system
which is working?

PETER RYAN: The Bankers Association says it will cooperate in any inquiry in addition to the ones
already under way.

But Professor Stephen King says although Australian banks are the envy of the world, they'll
eventually have to face up to change soon or later.

STEPHEN KING: I think for Australia to stand back, put our head in the sand and pretend that the
rest of the world and the financial structures of the rest of the world aren't changing, I think
that is a terrible naïve position.

What we need to do is be upfront, to lead the debate, look at our own financial system and to make
sure that we are in line with the sort of reforms that are going to be occurring in the rest of the
world; but the world is not going to stand by and say 'let's not learn anything from the current
global financial crisis'.

The rest of the world will be learning. We need to as well.

PETER CAVE: Professor Stephen King of Monash University ending that report from our business editor
Peter Ryan.