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Citizens Electoral Council of Australia

Media Release Tuesday, 14 August 2018

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

Greens, experts echo Bob Katter and CEC on full bank separation

The Australian Greens on 8 August announced their policy for a full separation of Australia’s too-big-to-fail banks. The Greens have long expressed support for ending vertical integration in banking; their announcement clarifies that their policy is for the complete, Glass-Steagall-style separation of traditional commercial banking from all other financial activities that Bob Katter MP introduced legislation for on 25 June, the Banking System Reform (Separation of Banks) Bill 2018.

“The Greens are sick and tired of regulators fiddling around the edges”, Greens leader Senator Richard Di Natale and financial spokesman Senator Peter Whish-Wilson announced via email. “They’ve been doing it for decades. That’s why we’re announcing today that the first step to fix the big banks is to break them up.”

The Greens plan goes slightly further than Bob Katter’s bill, in that it requires all financial institutions to operate in only one of four areas:

  • Deposit and loans, including savings accounts, credit cards, mortgages and business lending

  • Large-scale superannuation funds, including default funds and choice funds

  • Insurance, including life insurance and general product insurance

  • Complex financial products used for investment banking, hedge funds, self-managed super funds, financial markets, auditing and liquidation

Bob Katter’s Separation of Banks bill separates the first category, which is traditional banking, from the other three. The Greens would also require any non-bank institutions to do business in only one of the other three categories. While the separation of the first category of traditional banking is the most important, the Greens’ policy would end many of the conflicts of interest that riddle Australia’s vertically-integrated financial system.

The Greens also plan to strip powers from the current, failed regulators: “The second part of our plan ensures customer safety, by handing over regulation of the sector to the ACCC [Australian Competition and Consumer Commission]. The current regulators, ASIC [Australian Securities and Investments Commission] and APRA [Australian Prudential Regulation Authority], have shown over and over again that they are more interested in keeping the big banks happy than protecting customers. This sector needs a powerful regulator who stands up for us.”

The Greens’ announcement immediately boosted the debate about bank separation, which has been raging globally for years, but for which the Citizens Electoral Council has been a lone voice in Australia until the past 12 months. Around the world, many experts are firm advocates of Glass-Steagall, including Bank of England chief economist Andy Haldane, former UK Chancellor of the Exchequer Lord Nigel Lawson, US Federal Deposit Insurance Corporation vice chairman Thomas Hoenig, and former Citigroup chiefs Sanford Weill and John Reed. Following the announcement from the Greens, Australian experts spoke up in support.

In The Australian on 9 August, Adam Creighton quoted former ACCC chairman Allan Fels’s endorsement of full separation. Professor Fels reiterated his April 2018 call for an end to vertical integration: “There are a number of serious structural issues that need to be considered, the first and most obvious is the separation of the activity of creating financial products and then offering so-called independent advisory services to customers on what are the best products,” he said. The experienced regulator also addressed the need to end so-called horizontal integration, by which risky trading activities get subsidised by bank deposits: “A second very important one is whether there should be a structural separation between traditional banking activities and the more risky investment activities. … Banks benefit from the implicit guarantee on their deposit liabilities which flows into their trading activities.”

Fels acknowledged the arguments that customers should be more careful and that more competition was needed in the banking system. “But what can’t be ignored is [the] deep structural conflict of interest between profit maximising activities and the need to provide essential services”, he said. “Some aspects of banking are comparable to a utility, everyone needs banking services to be available, to that extent it’s an essential service.”

The 8 August Guardian reported other expert endorsements: “The former ASIC chief economist Alex Erskine described the package as ‘comprehensive’ and said it ‘directly addresses several of the failures inherent in the existing regulatory architecture’ revealed by the banking royal commission.

“Andy Schmulow, a financial regulation expert at the University of Western Australia, said the policy was ‘far-reaching’. ‘But I cannot see lesser responses breaking the cycle of misconduct-cum-consumer abuse followed by apologies and undertakings to put things right, followed by further instances of misconduct,’ he said.”

The Citizens Electoral Council had criticised Greens Senator Peter Whish-Wilson for his statement in the Senate on 14 February that “I do trust the regulators—people like APRA, the Reserve Bank and ASIC”. Whish-Wilson was justifying the Greens’ support for the APRA crisis resolution “bail-in” bill that the government pushed through the Senate without a formal vote and with just eight Senators present, which the CEC had warned opened a back door for APRA to bail in deposits in order to prop up failing banks in a future financial crisis (similar legislation in India has just been withdrawn due to the concern about deposits).

Senator Whish-Wilson’s declaration of trust preceded the hearings of the banking royal commission, however. With his announcement of the policy for complete bank separation, it seems Senator Whish-Wilson has lost his faith in APRA. “Our regulation of the financial services and of the big banks has failed,” Mr Whish-Wilson said in a press conference. “There’s been a lot of evidence that our regulators both across ASIC and APRA have been captured.”

The CEC welcomes the Greens’ policy of full bank separation. As yet, the Greens have not indicated any plans for legislation, but there is already legislation to achieve full separation, which is Bob Katter’s private member’s bill. That Bob Katter, the CEC and the Greens can agree on full bank separation is illustrative of the bipartisan nature of the support for Glass-Steagall around the world, which spans the entire political spectrum, from “left” to “right”. Bob Katter greeted the Greens’ announcement with this wry 9 August Facebook post: “Normally I like my greens with a T-bone steak but it’s good to see them and former ACCC Chair, Allan Fels backing policy for full bank separation.”

Click here to order a free copy of the CEC’s new banking handbook, The Next Financial Crash is Certain! End the BoE-BIS-APRA Bankers’ Dictatorship: Time for Glass-Steagall Banking Separation and a National Bank.

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