One of the achievements of the Fisher Labor Government was the creation of the Commonwealth Bank. It provided the basis for social capital to be available to the Australian economy.
It enabled the public to influence the behaviour of financial institutions. After it was privatised the only lever was regulation and consumer legal action.
The time has come to seriously explore the market failure of competition in financial services.
We saw in the 1980s the emergence of mortgage brokers into the house financing sector. These entities used new financial instruments increasing competition in the financial sector. However mergers and the global financial crisis have dramatically altered the competition they can provide.
Consumers and the non-finance sector are the losers with the Reserve Bank indicating the spread between wholesale finance costs and the rates charged on housing finance are greater than the pre Global Financial Crisis levels.
What policy options are there?
The current Government policy is to use public shame, which is not working while Joe Hockey is grandstanding with no real solution.
John Kennedy after being double crossed by the United States steel owners who hiked up steel prices after Kennedy had brokered a reasonable wage deal to contain inflation used executive power to break the oligopolistic behaviour. He directed the internal revenue service to conduct full tax audits on all steel executives, a back down from the steel industry over the inflationary price rises was the result.
Unfortunately our tax laws prevent the Treasurer or the Prime Minister from ordering similar actions against the bank executives.
The current public debate is centring on some regulatory action, ranging from rate controls to legislation to regulate behaviour.
The difficulty with the options being considered is they either will be too slow, unenforceable or have unintended consequences.
It is time to revive the memory of King O’Malley and Andrew Fisher.
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