I have an opinion piece in Crikey today (over the fold) on that letter mainly trying to talk about things other than the ‘Peoples’ Bank,’ a term that is a media invention today. Of course, the title of the Crikey piece that they substituted in appears contrary to what I was trying to do (Sigh!). That said, Bernard Keane in Crikey today does an excellent job of accurately reporting what we were trying to do in the letter.
[DDET Read the article]
“Gans: Why the People’s Bank makes good sense”
Crikey, 8 July 2009.
If there is one thing Australian governments have been good at over the past three decades, it is periodically reviewing the banking system and its regulation. Starting with Campbell in 1981 and then Wallis in 1996, governments have found that the best way to consider banking policy is to move it above the political fray, take its time, look at all parts and independently charge a panel with reviewing the state of affairs and providing clear and evidence-based recommendations.
In an open letter today, six economists (including myself) making the case for another similar inquiry to take place over the next year or so. In the letter we note that the Australian financial system has weathered the global storm relatively well but at the same time a significant and often radical set of policies have been put in place. ACTU president, Sharon Burrow, called many of these policies necessary “band aids.” At the same time, however, it is believed that those policies while shoring up our major banks have disrupted the smooth workings of the financial system. Right now, that isn’t a problem but into the future as we come out of this crisis the costs of those might be felt.
This is not simply a timely review but a necessary one. Economists have come to realise the gaps in their knowledge of how regulation performs and what the best institutions are for on-going government intervention in the financial sector. The Prime Minister is well aware of these as he articulated in his much talked about essay for The Monthly. For these reasons, it is important to step-back and assess the new knowledge gained here and around the world and consider a greenfields approach to our set of financial regulations.
It is interesting that the proposal, floated although not necessarily endorsed in the letter, that a government-owned institution might have a competitive and stabilising role was picked up so strongly in the media. That policy likely has costs and benefits and only further investigation will determine its appropriateness. The media attention surrounding it only adds grist to the mill that considered policy evaluation is necessary in this sector. Indeed, it is in the major banks’ interest to get behind a new independent inquiry lest policies directed towards them continue to be enacted on the fly or in the midst of some new political storm in relation to bank profits.
Our goal here is to decouple of review cycle from the electoral cycle for banking. That is surely something many interested groups can support.
Joshua Gans is an economics professor at Melbourne Business School. The open letter can be viewed here: https://economics.com.au/?p=3816