Additional comments—Senator Gerard Rennick

1.1Due to the neo-liberal policies of the Hawke-Keating Government, banking services in Australia have declined in recent decades due to banking power becoming more concentrated in the hands of the big four.

1.2The privatisation of the Commonwealth Bank of Australia (Commonwealth Bank) in the 1990’s led to an alarming decline in ethical behaviour by the banks, so much so that the government was forced to hold a Royal Commission into misconduct by the banks.

1.3Thousands of branches across Australia have closed since the privatisation of the Commonwealth Bank in the early 1990’s. This is despite the existence of a voluntary Banking code of conduct that stipulated that banks cannot close branches if they are the last branch in town, and the community must be consulted before any closure. The major banks are not honouring this contract.

1.4Banking is an essential service. In the same way health and education have public and private providers, banking services should also be underpinned by a public bank.

1.5The major banks make strong profits due to the social licence granted to them by the community. It has become apparent that since the privatisation of the Commonwealth Bank, which previously competed with the private banks as an ethical watchdog, that private banks have no interest in honouring the social licence granted to them by the Australian government.

1.6The inquiry identified a number of vulnerable community groups who will be impacted by the closure of bank branches in both the regions and metropolitan areas. These groups are:

Retirees. Many older people are uncomfortable using the internet. The increase in online scamming has made them even more uncomfortable with using online banking. Retirees as they get older find it harder, due to declining cognitive abilities to navigate their way around a computer. The Federal government has an obligation to ensure that retirees can access face to face banking services.

Immigrants. Many immigrants cannot speak fluent English when they arrive in Australia. They cannot necessarily understand the requirements of internet banking and government laws, when it comes to setting up bank accounts and transferring money into Australia. They will need access to a banking specialist who can provide the right advice that only a branch can provide.

Small Businesses. These entities are the lifeblood of Australia's economy. Small businesses need access to cash facilities daily, in particular the ability to deposit cash takings. If businesses have to store cash on their premises overnight, they become a target for criminals seeking to access cash. Apart from the greater risk of robberies, insurance premiums will increase due the risk of break and enters.

Community Groups. Volunteer organisations need access to branches to obtain cash for their community events. They also need access to branches to co-ordinate changes in executive positions that require new executives to establish 100-point id and proof of signatures.

Aboriginal Communities. Aboriginal communities live in remote areas often without access to Wi-Fi required for internet banking.

Regional Towns. Regional towns will suffer greatly if they don’t have access to a bank branch. It will impact the ability of businesses, community groups, retirees to carry out banking services in a timely and cost-effective manner. It is evident from the Banking inquiry that the closure of branches in regional towns has nothing to do with the profitability generated by a bank in relation to the town’s regional area. The regions still generate most of the Australia’s wealth and with it much of the bank's wealth. What is apparent is that banks are shutting down branches in regional areas purely as a cost saving measure and to help reduce carbon emissions. The banks do this by moving the town business banking to an internal cost centre related to business banking but not to the region. While there is nothing illegal in this, it does give the impression that the regional towns cannot support a local branch which is not true.

Farmers. Many farmers cannot access internet banking or mobile coverage. This makes it difficult or impossible for them to access internet banking.

Natural disaster regions. In times of natural disasters, it is not uncommon for internet services in the region impacted by the natural disaster to close. It is therefore vital for branches to remain open so that residents living in that impacted areas can access banking services, especially cash.

1.7As a result of bank branch closures, it is communities that pick up the cost in the following ways:

Loss of jobs due to bank staff being relocated and the cascading effect of businesses closing.

Decline in customer service.

Increased costs as residents are forced to travel further to access banking services.

Increased risks for businesses such as holding more cash on the premises.

Increased transaction costs due to customers having to use EFTPOS or ATMs, which incur banking fees.

Increased fraud risks associated with online scams.

Increased hardship as residents impacted by natural disasters can't access banking services.

1.8Banks on the other hand stand to gain from bank closures in the following ways:

Lower costs because of savings made from closing the physical branch and sacking staff.

Increased revenue derived from charging fees to use online services and monetising data harvested from online transactions.

Lower compliance costs as meeting CO2 emission targets is achieved by closing branches.

1.9Three possible solutions are:

(1)Enforcement of a mandatory Banking Code of Conduct to keep banks open. It is too late to enforce this code as many regions and towns have already lost their branches.

(2)Increase existing levies on existing banks to fund community banking. Under this model, existing levies on banks would increase to fund the establishment of community banking through existing providers of community such as Bendigo Bank.

(3)Post offices—Bank@Post Services on behalf of private banks. The inquiry heard that post offices only provide a small number of the overall services that are required to run a full-service bank. The inquiry also heard that while the private banks do reimburse Australia Post for the cost of providing banking services, it is not clear if the funding is enough to ensure it is an ongoing sustainable funding model. It is doubtful that every post office could guarantee the provision of services for every major bank on a consistent basis, given labour shortages and access to training facilities in regional areas.

(4)Post offices—Provide Bank Services on behalf of a Government Bank. Under this model, the cost of providing banking services using a government owned bank/banking services would be underwritten by the Federal Government and provided through existing post offices. The model would require the Federal Government to establish its own banking mainframe and corporate functions to administer its own bank accounts, as well as ensuring the bank is adequately funded. Alternatively, the Federal Government could direct the Reserve Bank of Australia to establish a retail division to manage this function. This model could be used with a view to eventually transition to a one stop shop for Government services including banking, insurance, postal and social security services that is rolled out across Australia.

(5)The establishment of a stand-alone Public Bank. The best long‑term viable solution to the closure of bank branches across Australia is the establishment of a government owned bank similar to the previous model whereby the Federal Government owned the Commonwealth bank.

1.10The advantages of a public bank are many and can be outlined as follows:

(1)The restoration of banking services for the vulnerable community groups outlined above.

(2)Lower social costs for the taxpayers. The major banks, despite claiming to be private are in fact protected by the taxpayer in the form of a strange fascist/socialist hybrid model. Examples of taxpayer protection include the introduction of a low interest Term Funding Facility throughout COVID and significant government protections throughout the GFC. Banks cannot have it both ways. They cannot be allowed to privatise profits whilst socialising losses.

(3)The introduction of ethical competition and less regulation. It is no surprise that the privatisation of the Commonwealth Bank and the introduction of Superannuation in the early 1990's eventually led to a Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Without a public bank that is forced to act ethically due the inherent parliamentary oversight that comes with it, the private banks were allowed to behave recklessly.This has resulted in a Royal Commission that recommended more regulation that is strangling the economy rather than helping it. A public bank could reduce the need for unwieldly regulation by providing ethical competition.

(4)A Public Bank could also be used to administer a government run superannuation fund. This has the potential to reduce billions of dollars in Superannuation fees and provide an easy one stop shop for people to offset their superannuation balance against their mortgage.

(5)A Public Bank could also offer longer term fixed mortgages. Private banks struggle to secure funding longer than five years, whether it be via onshore retail term deposits or offshore wholesale funding. A government owned bank could provide longer term fixed term mortgages.

(6)The creation of a public bank could operate in conjunction with the creation of a government owned Insurance Office. It is estimated that 40-50% of Insurance costs in Australia are made up of reinsurance costs paid offshore. If the Federal Government was to reinsure its own Insurance obligations, then the cost of insurance would reduce dramatically. This is turn would make it more affordable for many households and businesses to take up insurance again, lowering the overall insurance burden on the economy.

(7)A public bank would have a universal obligation to generate a minimum return of equity, to ensure private banks are not priced out of the market. These profits couldfund a Development Bank, similar to the one created by Robert Menzies in 1959 to provide funding for councils and other Statutory Authorities to help fund infrastructure and other essential services.

1.11This option is an extension of the previous option (that is, post offices providing government backed bank accounts) but would involve eventually transitioning to a hub for all Government services including insurance, superannuation, postal, social security and banking.

Recommendation 1

The establishment of a government owned bank that will maintain bank branches in regional and metropolitan communities.

Senator Gerard Rennick

Member

Liberal National Party Senator for Queensland