The Peoples Bank of Australia

Back in April, 2009, I posted a blog suggesting that a government owned and operated bank may be the solution to a more competitive banking sector in Australia (see Banks and Interest Rates). This was in response to the banks not passing on in full the 25 basis point cut in interest rates at the time. More recently several of the banks have passed on more than the rise in interest rates by the Reserve Bank of Australia, as the economy moves into an upswing. This suggests that the system is not as competitive as it should be, or is oligopolistic at best.

On July 8, 2009, less than 3 months after I posted the blog, six "prominent" Australian economists in an open letter to the government, called for a systematic review of the financial system, with a recommendation that an Australian peoples bank should be established by the government to compete with the big four banks, which currently control 80% to 85% of the market in Australia. These six "prominent" economists are reportedly from both sides of the political spectrum, and include Rismarck International CEO Christopher Joye, Professor Stephen King of Monash University and former government advisor Dr. Nicholas Gruen.

They recommend establishing a bank modeled on the "Kiwi Bank", an arm of New Zealand Post. There are of course precedents in Australia and in other countries where highly successful government banks have been established and operated, including the Commonwealth Bank of Australia, which was later privatized, the Kiwi Bank, and the Alberta Treasury Branch, a provincial government owned bank that has been operating successfully in Alberta, Canada for many years. It competes very effectively with Canada's major banks.

Christopher Joye has recently suggested that the appointment of Ahmed Fahour, the former head of Australia National Bank, as the new Chief Executive of Australia Post, sets in place the infrastructure to establish a bank as well as a government owned fixed-income superannuation investment plan to compete with retail superannuation. The post office has a network of more than 4,300 outlets, which is more than the number of branches owned by the combined four banks.

The idea of a government owned bank as a competitive force, which I suggested in my blog of April 2009, appears to have support in the economic community. The question now is,will it become a reality, pending the forthcoming election?