Last week, I tried to sort through the whole bank nationalisation issue. For instance, one of the issues being discussed is whether toxic assets should be moved from private banks to a single public bank. It was hard to tell whether this was a good idea.
This week I am asking a new question: instead of the public bank being a bad bank, do we need it to actually be a good bank?
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First of all, what is a good bank? Aren’t our Big Four banks currently good? Well, they are currently big but that doesn’t necessarily mean good. And they are currently profitable but that also doesn’t necessarily mean good even if it does mean bad.
What would a good bank be? It would be a bank that in the present crisis, takes deposits and a guarantee and then tries to lend out responsibly by investing in borrower information. Put simply, I am not sure our current banks are doing this. There are widespread reports of credit rationing and also discussion that banks are tightening home mortgage requirements — for instance, moving back from 5 percent to even 20 percent equity gobbling up the government’s home ownership grants in the process. That is a real worry. After all, the government has guaranteed deposits. The idea is that those deposits get retained with the banks rather than put under a mattress. However, if the banks are expanding their mattresses, then what is it all good for?
That said, I don’t know what the banks are doing. But the question is: does the government? Surely a reasonable quid pro quo for all this bank support is greater transparency and information so the government can assess its risk exposure? For the commercial property fund, what is the banks’ current exposure to risk? How are banks distributing guaranteed deposits? Is there really credit rationing?After all, the PM says that the market system needs this transparency but I haven’t seen the legislative requirements for it. I must admit, I am not sure we are getting anything for our public guarantee in that regard. Surely, we should expect certainty in lending in return for certainty in keeping depositors with the banks?
In the meantime, the banks are trotting along very well. ANZ, for example, continues to expand into Asia. Bank CEOs continue to have high pay and high bonuses all because things are going well — in part, because of a lack of competition. In the US, there are calls for bank dividends to be suspended when banks get government assistance. Where are similar calls here? I am not saying there should be but how can we square hardship and risk of insolvency with actions that make it look like times are good? If there was a case for an industry where the ask for it and lose it test should be applied, surely it is this one?
It is time for our journalists to ask these questions:
- What is the risk on commercial property?
- What are the banks doing with deposits?
- Have the banks changed their loan requirements?
- Why is bank executive pay not yet cut to save money?
- And what information are the banks providing the government?
In the absence of this, the case for a publicly owned good bank that does all of these things seems to me to be getting stronger and stronger.