The growing scandals engulfing the Big Four banks, now being amplified through the financial services royal commission, have opened the way for a major discussion about alternatives to the corporate banking oligopoly in Australia.
Now, Greens leader Richard Di Natale has entered the fray with a proposal for a People’s Bank to offer low-cost mortgages for home-buyers and other facilities.
The Greens’ proposal states: “Three decades of deregulation and privatisation has left us worse off, not better. The Big Four banks continue to dominate the market and are generating super profits for shareholders off the backs of ordinary Australians who are struggling to meet the cost of their mortgages. They charge hefty interest margins, up to three or four times over and above the wholesale rate they themselves access from the Reserve Bank.
“Imagine a bank whose real goal was to serve its customers, not line its shareholders' pockets. The Greens will use the Reserve Bank of Australia (RBA) to establish a People's Bank to provide basic low-cost services to the public.
“At the People's Bank, everyday Australians would be able to establish accounts directly with the RBA for day-to-day banking facilities.
“Customer service would be provided online, by telephone, or face-to-face through Australia Post and other partners. Everyday banking for public good, not profit margins!
“Products provided to the public by the People’s Bank would be: Savings accounts pegged to the RBA cash rate, with debit cards linked to these accounts also available.
“People banking with the People’s Bank can also have confidence that their savings won't be used for inappropriate investments, such as new coal mines.”
As could be expected, the Greens' people's bank plan has been met with a deluge of criticism by the Coalition government, the Labor opposition and swathes of pro-business economists and media pundits. Any proposal to challenge the neoliberal consensus, whatever its limitations, is complete anathema to the mainstream political establishment.
Labor leader Bill Shorten claimed the Greens’ plan was a “thought bubble” that needed more homework. “The real answer here isn’t to put more cheap cash into the market, which will actually just boost the cost of housing,” he said.
However, chief economist with the progressive think tank Australia Institute Richard Denniss supported the Greens’ proposal: “The Big Four have around 90% of the home loan market. They're increasing the cost of mortgages to enrich their shareholders,” he told the New Daily. “So why wouldn’t we consider a national bank offering a competitive alternative?"
Dennis said smaller banks and building societies often offered better rates than the big banks, but borrowers were “nervous” about switching to lesser-known banks. Allowing the RBA to offer competitive home loans would solve that problem. “It’s hard to have doubt about the RBA when the RBA stands behind the Big Four banks,” he said.
He dismissed concerns that access to cheaper home loans would add heat to the housing market. “The idea that high interest rates are good for the Australian economy is a very strange one,” he said. He argued that scrapping negative gearing and capital gains tax concessions was a fairer, surer way to take heat out of the housing market.
Not a new idea
Di Natale’s proposal for a people’s bank is not new. Arguments in favour of various forms of such a bank have been growing for many years.
Professor John Quiggin from the University of Queensland economics department argued in 2016 that a counterweight to bank misconduct, “padded” margins and a lack of competition might be the creation of a “people’s bank” — a form of which the Commonwealth Bank used to be before it was privatised by the Bob Hawke–Paul Keating Labor government and its John Howard Coalition successor.
“There is still a very strong argument for a publicly-owned bank with a charter offering a narrower range of services specifically to households and small business,” Quiggin said at the time.
He argued that savings deposits and basic loans, including home mortgages, are public utilities from which private banks should not derive huge profits. A government-owned bank could provide these crucial financial services at lower costs.
Quiggin pointed to the government-owned Kiwibank in New Zealand as proof the idea can work. Kiwibank was established as a subsidiary of the NZ postal service in 2002 and offers banking services through post offices and bookshops.
Its advocates argue it has delivered lower fees and better services. Crucially, Kiwibank has passed on every interest rate cut announced by the Reserve Bank of NZ in full.
The idea of a new public bank was also promoted in a paper written by Melbourne University professors Paul Kofman and Carsten Murawski in the Australian Economic Review in 2015.
They wrote: “In Australia, where the banking system is dominated by four major banks, core financial services are often not provided at cost and exclude significant parts of society.
“We suggest ... the establishment of a public-sector institution that provides core financial services, such as payment services, savings accounts, mortgages and other basic forms of credit, to retail customers and small- and medium enterprises. We think of it as a utility that ensures cost-effective provision of basic banking services to all Australians.
“The institution would be independent, but backed by the Commonwealth government and funded by government equity, deposits and public debt. It would be governed by an independent board, be transparent and accountable to the public.”
This proposal is somewhat different to the Greens’ plan. But the Greens’ announcement should be the basis for an ongoing discussion about the problems and challenges it would face and the best form it should take, as an initial step in the direction of a fully nationalised banking and financial system.
Conservative criticism has focused on the details of Di Natale’s policy, such as precise levels of interest rates. There is certainly room for debate about the problems of a people’s bank trying to compete in a totally uncontrolled housing market, as we have in Australia.
There is also the question of whether a people’s bank should operate as a direct arm of the Reserve Bank, or preferably as a new, independent entity, democratically controlled by a publicly elected board and subject to workers’ control.
The Socialist Alliance advocates putting all four Big Banks into public hands. It says it is necessary to “place the massive assets they possess under public ownership, to be used for the good of the community” through building public works and funding public health, education, transport and environmental protection.
A people’s bank could be a stepping stone in the direction of the only viable alternative to the corporate oligopoly of the Big Four banks — a socialised banking and financial system, subject to popular control.