
Issue No 101		06 July 2001

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Economics

Banking on the Goodwill

Given their history, Evan Jones wonders whether banks can really claim to be "just like any other business"

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Standing in a queue at the Erskineville post office, I realised that its length was due to people diverted from the closure of the local Commonwealth Bank branch. A woman queried the details on her receipt, and the counterperson said "It's none of my business. You'll have to deal with the bank." The woman, clearly distressed, was under the impression that that was what she was doing. She was evidently not coping with the fact that the 'People's Bank' no longer considered her a worthy customer.

Standing in a long queue at a real-life branch of the Commonwealth Bank, and requiring human contact, I had ample time to read the bounteous literature on the Bank's concerns for customer service. Mr Murray's smiling countenance was not returned. Oh that the funds diverted to public relations and Murray's share options had gone into the salary of an extra teller. Costs have also been deftly transferred from the Bank's balance sheet to the customer, whose travelling and waiting time is not being accounted for.

It's hard to believe that, after one hundred and fifty years of conflict over savings and credit facilities in Australia, certain fundamental niceties haven't been sorted out. The truth is that they had, until recently.

Controversies have long bedevilled the trading banks that dominate the finance sector. Because their key assets function as money, trading banks are mediators of the whole system of financial transactions and generalised commercial exchange. As a consequence, they have acquired certain privileges, but they have always carped at the associated regulations that come with a public function.

Another key tension surrounding trading banks is that they have always claimed broad coverage of customer needs. Yet the relative liquidity of their liabilities (inhibiting long-term lending) and a long-standing cultural elitism have left substantial gaps in the market.

In the past, government and community groups created other institutions that by-passed bank intransigence. State government savings and agricultural banks joined with mutuals to complement private sector priorities. However, the constituents of the Commonwealth Bank (Central Bank, savings bank, trading bank and development bank) became the centrepiece of socially-oriented government infrastructure.

These days the historically sensible procedure of public sector provision is politically unthinkable. Worse, the institutions that were established to counteract and complement the private sector have now been appropriated for the same narrow private purpose.

This revolutionary transformation occurred during the years of the Hawke and Keating Labor Governments. The bible for the transformation was the 1980 Campbell Report on the finance sector. Much of it is ill-informed and ideologically-inspired, and it still sits like a dead weight on intelligent policy making for the finance sector. Hawke and Keating lacked the advice and the courage to discern what changes were necessary, and how finance sector regulation could be changed strategically to enhance innovation and service while maintaining stability and equity.

A disdain for regulatory restraint created an environment that saw several State banks with a venerable history lurch into immoderate lending and subsequent collapse. But the privatisation of the Commonwealth Bank was the most significant of the changes.

The privatisation was driven, in three stages from 1991 to 1996, by the shameful opportunism of Paul Keating, first as Treasurer and later as Prime Minister. It was essentially a revenue-raising device, with the final 50% public ownership of the Bank sold off to balance the 1995-96 budget.

Caucus wasn't briefed. Not even the Cabinet was consulted. But federal Labor parliamentarians dutifully followed their leader to vote against their conscience. The rumours at the time were that, if Labor didn't sell off the Commonwealth Bank, the Coalition would - so Labor may as well get its hands on the loot.

The major overseer and beneficiary of privatisation from within the Commonwealth Bank was David Murray. Murray became General Manager in June 1992, but he was a key strategic player before his elevation to the top job. Murray was a long-time Bank employee, product of the banking sector's then 'cradle to grave' career nurturing (his father was also a Bank employee), but his pro-privatisation mentality reflects the era of deregulation. He acquired a Bachelor of Business, and the Bank sent him off to acquire a Master of Business Administration. This formal training no doubt enhanced Murray's administrative skills, but the typical anti-social content of business degree education has evidently not enlightened Murray as to the innately social character of the banking sector.

For example, Murray apparently had no sympathy for the Commonwealth Development Bank, the specialist lender to small business and the family farm. The Development Bank had an impressive history of employing specially skilled officers to deal with prospective borrowers who wouldn't get credit or wouldn't get it on appropriate terms from trading banks. The Development Bank was cynically closed down immediately after full privatisation of the parent Bank in July 1996.

Murray's reign at the Commonwealth Bank has proved profitable for shareholders, with enhanced annual profits and sizeable long-term gains in the share price. But a lot of Murray's vaunted success has come from appropriating the financial assets and infrastructure of a significant public institution and redirecting priorities towards more privileged customers (as with the other big banks) - large companies and high net worth individuals.

Although Murray whinges about low income customers, his lending ability and capital-raising leverage has been dependent upon his massive financial inheritance from the Commonwealth Savings Bank, the State Savings Bank of Victoria, and the State Bank of New South Wales (acquired by Colonial, in turn acquired by the Commonwealth). Large-scale pension payments still accrue in Commonwealth Bank accounts because of its previous government-owned status.

In return, according to the Finance Sector Union, the Commonwealth Bank has retrenched 15,000 staff and closed down 600 branches. Since acquiring Colonial, an additional 250 Colonial Bank branches have been closed.

This is the legacy of a man who used a National Press Club speech on June 27 to threaten governments to leave banks to 'carry out their functions like any other business'. But David Murray is a product of his times and an environment supportive of his practices and his values. The real indictment is of a bipartisan political neglect of the lessons from financial history - that profit-oriented financial institutions and the associated elitist banking culture do not cater to the wide range of needs that a community expects of a sector whose services are fundamental to a functioning economy and a civilised society.

Evan Jones lectures in Political Economy at the University of Sydney

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Issue 101 contents

Interview: A Little Knowledge
Labor's science spokesman Martyn Evans was the Opposition's key player on the Knowledge Nation inquiry. He fills us in on the process.

Education: Theory and Practise
Whether or not you agree with the priorities for of Barry Jones� Knowledge Nation Taskforce, Julie Wells argues its boldness has to be admired.

E-Change: 1.1 Email Nation
In the first of a series of articles on politics and the new economy, Peter Lewis and Michael Gadiel argue network technologies are reshaping the fundamentals of society.

Economics: Banking on the Goodwill
Given their history, Evan Jones wonders whether banks can really claim to be "just like any other business"

International: A Deathly Struggle
In this dispatch from PNG, a trade union leader briefs us on the situation following the shooting of seven students at an anti-privatisation rally.

History: Enlarging Human Personality
Mark Hearn argues that Lloyd Ross's post-War approach to Workplace Democracy seems contemporary by today's standards

Satire: Shit is a Four Letter Word
Australian TV drama is lame and gutless just look at the ABC's Love is a Four Letter Word, says Tony Moore

Review: Tribute to an Artist
Dalgarno painted the seagulls circling the seafarer like flies buzzing around the face of a bushman. Thus did the artist depict the maritime worker.

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