Citizens Electoral Council of Australia

Media Release Monday, 16 December 2013

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

Reserve Bank chief endorses ‘bail-in’, expects it in Hockey’s financial system inquiry

Reserve Bank of Australia Governor Glenn Stevens endorsed the “bail-in” policy of propping up TBTF (too-big-to-fail) banks, in an interview published in the 13 December Australian Financial Review.

Stevens raised bail-in, when questioned on whether Joe Hockey’s announced financial system inquiry should address the problem of TBTF banks.

The RBA governor said, “I think on ‘too big to fail’, as you know, there are—there are international efforts to try to at least go some way to lessening this problem by making sure that the really systemic entities globally, and even domestically, hold more capital, so that lowers the probability of failure.”

(Australia’s own TBTF banks—the Big Four—have no hope of meeting the new international standards for minimum capital, which is why his RBA is creating a $380 billion bail-out fund called the Committed Liquidity Facility to be proxy capital for the banks.)

He continued, “The international push is also going towards so-called ‘bailing-in’, so that sources, effectively equity finance, become available in a particular set of circumstances that—the hope there is that that prevents the public purse having to be used to recap institutions that can’t be allowed to fail. So that’s all good. I presume that the inquiry will take account of all those things.” [Emphasis added.]

(Stevens’ technical-speak is disingenuous: bail-in is a threat to much more than “equity finance”; as demonstrated when bail-in was applied to Cyprus in March 2013, it involves seizing the savings deposits of ordinary people, among the other so-called “unsecured creditors”.)

Stevens then expressed uncertainty that even the extreme measure of bailing-in will be sufficient to fully solve the systemic threat from TBTF banks.

What Stevens didn’t say

Stevens is a member of the Financial Stability Board (FSB) based at the “central bank of central banks”, the Bank for International Settlements, in Switzerland. The FSB is responsible to the G20 for putting in place bail-in powers in every G20 member nation, by the time of the November 2014 G20 Summit in Brisbane. His endorsement of bail-in gives the lie to the political denials of bail-in from Treasurer Joe Hockey.

Stevens did not mention that there is a far better way to deal with TBTF banks: Glass-Steagall—split them up into smaller institutions, so that they are no longer TBTF. This should be the subject of Hockey’s financial system inquiry. Australia’s Big Four banking conglomerates should be split up, so that banks that hold deposits are separated from investment banks that speculate and gamble in derivatives. The two types of banking should not have anything to do with each other—no cross-ownership, no shared management, and no cross-penetration of funds. The separation will protect deposits from risky financial activity. Investment banks will have to wear their own losses—no bail-outs or bail-ins.

The Citizens Electoral Council has published template legislation for Glass-Steagall in its new pamphlet, Australia Needs Glass-Steagall. The CEC is leading a nationwide campaign to force the federal Parliament to legislate for a Glass-Steagall banking separation, instead of bail-in, as soon as possible in 2014, before the next phase of the global financial crisis hits. To support the campaign, join the CEC.

Click here for a free copy of the CEC’s new pamphlet Australia Needs Glass-Steagall which proves that derivatives gambling will cause Australia’s banks to crash, and only Glass-Steagall is the solution.

Click here to join the CEC as a member.

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