|Issue No 22||16 July 1999|
Chris Connolly on the People's Bank Version 2.0
When a bank branch closes, the pressure on the local community can be enormous. In rural towns that pressure can sometimes turn to despair, especially when the last bank closes its doors. In urban areas, there is growing frustration at the downgrading of services. People turn to the local Mayor or Shire President for answers and leadership, but there are no easy solutions to be found once the bank is gone.
Even the ABC's "Sea Change" is tackling this issue, as Pearl Bay tries to recover from the double blow of the exit of both the bank and Diver Dan. While some viewers would happily dump the bank in exchange for Diver Dan's return, the Pearl Bay locals are considering establishing a community bank.
Community banks are small bank branches, owned and managed by the local community, with backing from a larger financial institution. To date, Bendigo Bank has been the leader in this field and a number of small rural towns have re-established banking services using this model.
But community banking is best considered as a fall back option after other efforts have failed, and the model is less suited to urban areas where there is less community spirit. What can be done to shore up banking services at the local level before the last bank closes its doors?
In NSW, the Local Government and Shires Association has been considering tackling this issue on a statewide basis, and are even toying with the option of opening a "People's Bank". In 1998 they established a Banking and Financial Services Taskforce to consider all the options, and the taskforce released an interim report in April 1999. (http://www.lgsa.org.au/finance/interim.htm)
While the interim report is well written and reasonable, and canvasses a range of roles which local governments might play, the often over-hyped media statements by NSW LGA President Cr Peter Woods give the impression that Local Councils are planing to set up a chain of bank branches around the country, and solve all of our banking problems once and for all.
Indeed, Peter Costello was able to (smugly) point to the People's Bank proposal when fending off questions about the lack of competition in banking services in Australia. Costello knows full well that the People's Bank will never get off the ground, and the proposal just seems to be giving the big banks breathing space in political fora where their massive profits and dwindling branch networks are under scrutiny.
Federal and State Governments have each taken their turn in running banks, with some reasonable successes and some spectacular failures. Local Government opening banks would be turning back the clock, and risking the stability of local finances on a commercial venture well outside the skill and expertise of local councils. The People's Bank Version 1.0 (the Commonwealth) was sold off with little thought for the consequences for local communities. No universal service obligations were applied to the privatised banks or the industry as a whole, and there was no 'social bonus' from the sale proceeds. But that is all in the past. A People's Bank Version 2.0 is not the solution.
A better alternative is to examine what preventative measures local government might take, to slow the pace of branch closures. Councillor Woods, in one of his saner media releases, argues that Local Government has enormous bargaining power. With $5 billion revenue in NSW, assets of $65 billion and a network of 177 Councils, local government does have some leverage. Most Councils tender out their own banking services. Obviously the final decision is largely based on price. When the bank which wins a tender later begins closing branches in that area, there is enormous political tension. But the contracts are often for five year periods and it is difficult to exercise any leverage during the early stages of a contract.
One option outlined in the interim Taskforce report, and the one which appeals to me the most, is for Local Councils to add some element of community obligation to these contracts for banking services. Over a long period, as the contracts come up for renewal, local government can win back some ground from the banks. The type of commitment they can ask for might include branch numbers, branch opening hours and community reinvestment. In order to win government contracts, banks would have to show a commitment to the whole community.
It won't be the "People's Bank". Locals won't own any part of the bank itself. It may not win the votes and headlines that a People's Bank might attract. It will also take a long time to make an impact. But it will restore a community role in banking, and in conjunction with other efforts, can serve to remind the banks of their wider social obligations.
Chris Connolly is the Director of the Financial Services Consumer Policy Centre and General Editor of the Internet Law Bulletin
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