Banking Policy Goals:

  1. Ensure Australians can achieve the Australian dream.
  2. Ensure the level of economic activity in Australia is sustainable long-term
  3. Ensure the Australian Government does not need to prop up the banking system, even under worst case scenarios.
  4. Phase out the ability of Banks to change the quantity of money in the economy
  5. Develop a strong and pragmatic case to phase out usury in Australia

 

Total Home Loan, Investment Property, Personal & Business Debt - Australia
Year Home Loan Debt ($Billion Investment Property Debt $Billion) Personal Debt ($Billion) Business Debt ($Billion)
1990 67 11 44 214
1991 73 14 42 217
1992 81 16 40 204
1993 95 20 40 193
1994 114 26 41 191
1995 130 32 45 200
1996 143 38 48 229
1997 156 46 52 247
1998 171 59 58 274
1999 185 73 59 298
2000 211 93 75 318
2001 245 108 74 345
2002 288 125 83 371
2003 336 156 91 380
2004 393 200 101 396
2005 452 228 113 444
2006 518 255 124 522
2007 593 276 148 620
2008 658 303 154 744
2009 722 313 136 741
2010 785 337 141 697
2011 824 387 135 714
2012 858 409 135 732
2013 896 437 143 741

Source: RBA Statistical Tables > D2 Lending & Credit Aggregates. Data points taken at December for each year.

Raise the minimum cash deposit back up to 20% 
for investors purchasing residential properties that have already been built

Since the entry of foreign banks in the mid 80‘s and non-bank lenders in the early 90’s, competition between banks and non-bank lenders has resulted in a reduction in the minimum loan entry criteria to buy residential property (1). For example, a person wanting to buy a house in the mid 80’s would have to come up with at least a 20% deposit. Currently, lenders have been offering mortgages with a minimum deposit of only 3-5% in some cases. Minimum cash deposits of less than 20% are irresponsible because they do not allow a sufficient margin of safety to the purchaser in the event that property prices decline.

Progressively limit the use of short-term offshore funding by lenders
Using short-term offshore funding adds significant risk to Australian lenders in the event of external or even internal economic shocks. Lenders in Australia should not transfer risk to the Australian Government or to the Australian people. Lenders operating in a fashion whereby they need to be propped up by the Australian Government and therefore taxpayers during times of crisis is unacceptable.

A Bill to remove information asymmetry between banks and customers

Develop a simple Bill that states that all registered financial lenders operating in Australian are required to explain to prospective borrowers where the money will come from to fund the new lending and the time frame associated with each source of money.

A Bill to introduce zero risk bank accounts
Develop a simple draft Bill that requires all Australian deposit taking institutions to make available a bank account to customers that is risk free, whereby all the value of the money in the risk free account will be made available to the account holder even during a run on the bank. Assuming sufficient education is provided so consumers know they are able to access a risk free account (which would likely attract no interest, which is not very different to current transaction accounts), the above change reduces the need for taxpayers to bail-out a bank if it becomes insolvent. If we know that we can put our money in a risk free account and we choose not to, then no one needs to hold our hand if the bank fails. In terms of compliance, each bank would need to demonstrate that the value of the funds in their risk free accounts is 100% secure, either via those customers being secured creditors of the bank, or via other means. Given that the Bank of England has now publicly stated that nearly all the money in our economy is created and destroyed when loans such as mortgages are issued and repaid, it is time to start bringing Banks to heel.

A Bill to introduce an automatic whistle-blower in all banking organisations.

Paul Moore, who was reportedly sacked by the Bank of Scotland for exposing risks has spent many years in the banking industry and shares a great suggestion in an interview below with Positive Money.

He speaks about his suggestion at 19 minutes and 5 seconds into the video.

The following is a transcipt of the suggestion made by Paul Moore in the above video,

This has been my idea, have a dedicated expert halfway house between executive and non-executive who is an expert in oversight and assurance and all the technical stuff. And all the control functions, risk, compliance report into that person, they never report into the executive, then they can speak up whenever they want to, none of them can be fired, except with a full meeting of the non-executive with proper representation, so these people are not whistleblowers but it is their job to blow the whistle, that’s their job sometimes, it’s a bit like the telemetrist in the formula one team, is supposed to say to the driver if you carry on that way you will run out of fuel before the end of the race but they don’t get fired do they? Unless you put in those checks and balances and unless you get the auditors doing a better job, the shareholders doing a better job, the regulators doing a better job, all of those systems need to be connected with one another in a seamless system that recognises that powerful executives who are not subjected to equal power on the other side of the table will do what they have done in the past. It’s just human nature, forget about blame to them or anything like that, its just the way humans are. By the way, greed and the love of money and power and pride are the two most powerful deadly sins the world has ever known, we ought to know that by now.

Things to-do:

  1. Progressively raise the minimum cash deposit for mortgages back up to 20% (& 50% for non-cash deposits)
  2. Progressively limit the use of short-term offshore funding by lenders
  3. Draft a Bill that requires all deposit taking institutions to make available a zero risk bank account where all the value of the account is made available to the account holder even during a run on the bank.
  4. Draft a Bill that requires all deposit taking & lending organisations that undertake activities in Australia to have the risk and compliance functions reporting to an individual in the organisation that does not report to either executive or non-executive directors so that they are able to report freely on the true state of affairs at each point in time.

Limitations: Stagger the phase in of higher deposit ratios and the removal of demand side incentives such as negative gearing etc so that house prices do not rise any faster than 3% per year while attempting to make the changes slowly enough to avoid house price deflation. Note (1): Financial System Inquiry Final Report, 1997, Commonwealth of Australia, ISBN 06422610240, Chapter 14 & available here. Note 2: A recent example of a lender raising the issue of short-term offshore funding is available here. Note 3: A link to a recent example of lenders loosening lending standards due to competition is available here.

Open Letters on Banking

Open letter to The Reserve Bank of Australia

 

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