JIM COOMBS. Nicholas Gruen and the lessons of history.

Nicholas Gruen’s piece in the Saturday Paper, Making the Reserve Bank a “people’s bank”, while gratifying in its support for my recent piece, lacks a particular historical perspective: we’ve been there before.

It seems we agree that the deregulation of the banks and the financial sector has been a disaster, except for the avaricious few, and destroyed faith in banks which underpin our commerce and industry. So anyone who thinks Paul Keating was a genius to do it is wrong, not as a matter of opinion, but as a matter of fact.

The more interesting aspect of what he recommends is that it is not new. Before Menzies was elected in 1948, that is what we had. The state-owned Commonwealth Bank of Australia, after it took over the State Bank of New South Wales, was the main savings and home loan institution in the country, a veritable “people’s bank”, and one of the largest in the world.  The “commercial banks” were just that, doing business to business transactions, and were substantially smaller, and regulated by the Commonwealth (central) Bank.

Nicholas Gruen’s article demonstrates quite elegantly that the “economic reform” of Paul Keating to deregulate the banks has led to a wasteful and unnecessary intermediation which is  slow and enriches the banks at the expense of all who use them. His scheme would reduce the interest paid on mortgages, and eliminate the high cost of fees charged by the banks, which are not currently costed/explained as to work done to either customer or regulator.

One of the key features of this Reserve Bank virtual monopoly, is that it significantly reduces the cost of banking to both government and consumer alike. Profits would go to the revenue, getting us closer to budget sanity. The existing banks could compete but only by offering better terms, in respect of interest on deposits and on mortgages and lower charges.

It is also worth noting that Gruen sees banking, which government underwrites in the event of a “run on the banks”, as another “Public Good” of the kind referred to in my earlier posts to this blog. That is, it should be available to all at the same price without discrimination in favour of the rich or denial to the poor.

Well, you might say, “he would say that, wouldn’t he”, but I rest my case, along with Nicholas Gruen.

Jim Coombs (Yes.  Nugget Coombs was my father) is a retired magistrate and sometime economist.

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3 Responses to JIM COOMBS. Nicholas Gruen and the lessons of history.

  1. Colin Cook says:

    This brilliant article, The Franchise of Finance, (Heads up by Dr Steven Hail, Adelaide) looks at the financial system as a franchise operation with we, the people, franchising ‘the sovereign’s full faith and credit’. It raises the question as to how and why we, as the franchisor are not really ‘raking it in’!
    http://cornelllawreview.org/files/2017/08/HockettOmarovafinal.pdf

  2. paul frijters says:

    yes, Nick’s proposal is doable and makes the government money. I think this is one of those ideas that will go from ‘this is crazy’ to ‘of course we should do this’ in due course.

    One problem is courage to set it up. Another is the temptation to sell it off again afterwards.

    Paul Keating has a lot to answer for.

  3. Dog's breakfast says:

    I read Nicholas Gruen’s piece with great interest. His proposal drew mainly on the idea of the Reserve providing the essential banking services, and risk-free mortgage sector (LVR of less than 80%) with a cheap and viable all-basic-banking needs solution.

    Yes, we have been there before, and we sold them off. The Reserve is an excellent vehicle to create anew without the need to nationalise any existing bank, (and the incredible expense therein)

    I hope Labor, if and when it gets in, has the courage firstly to appoint Nicholas as the next head of Treasury, and that the Reserve Bank plan gets up.

    Would take a bit of courage that, which is the key problem to his initiative, and yours Jim.

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