The Minister for Financial Services and Regulation
21 October 1998 - 26 November 2001
Parliament House, Canberra
28 June 2001
SUBJECTS: David Murray's comments, ALP banking policy in tatters.
MINISTER: As of today, the Labor Party's banking policy, released just a few days ago, a few weeks ago, is now in tatters. The bubble has burst on the Labor Party's banking policy. It was based on a co-operative agreement with the banks to implement a social charter. The most senior banker in the country has now stated categorically that a voluntary social charter does not work. If a Labor Government is going to regulate banks then banks are going to exit services and that is a tragedy for consumers. We want to focus on how consumer can benefit from better banking. From the boardroom to the branch office, banks have community obligations. They have to have at the forefront of their thoughts how they can best serve the community as well as shareholders. And banks also need to u understand, as I think they do, increasingly that the banks are not just part of an economy they are part of a community and they have to serve all people in their community not just their shareholders.
REPORTER: So, you were concerned by those comments yesterday by the Commonwealth Bank?
MINISTER: Well, I think what it says is that when Governments step in with regulation, the banks are going to exit. We are not facing a new Labor Party; we are facing an old Labor Party that does want to control banking in Australia. Consumers are the losers out of the Labor Party's banking policy; there is no doubt about it.
REPORTER: Doesn't Mr Murray's comments just show that he is out of touch with community assessment as the Government was the BAS simplification.
MINISTER: I think Mr Murray has some very diverse views. I don't always agree with Mr Murray. As I have said publicly and privately the banks have community obligations at both the boardroom level and at a branch level. And that is why the banks have suffered greatly over the last few years because they have left the community behind as they have made changes in the boardroom that have affected the performance of the bank for shareholders. Now what it says is the best way to get results out of the banks for the community is to persuade the banks and make sure they deliver fee-free or low-fee accounts for those most vulnerable in the community. And over the last few months, the banks have announced up to 5 million fee-free and low-fee accounts for pensioners, for disadvantaged people in our community. That delivers the social obligations at a boardroom level to consumer. And if you are going to step in with regulation, the heavy hand of over regulation is going to cost consumers. And that is what the Labor Party's policy is about.
REPORTER: But isn't it a form of blackmail by Mr Murray?
MINISTER: The Government is not going to give in to any form of blackmail from any corporate identify. What we are focussing on is how to deliver real outcomes for those most disadvantaged in the community. Australia needs and must have a robust, profitable, successful banking service. We need that. And the only way you can do that is to work with the financial institutions to deliver real benefits to consumers.
REPORTER: Given the level of profits they have, can we really take seriously this claim by Murray that he is going to have to ditch some services under the social charter. I mean they make $9-10 billion profit a year ..[inaudible]
MINISTER: The one thing worse than a bank making excessive profits is a bank that makes a loss. The worse thing the Government can do, any Government can do, is to over-regulate an industry. Over regulation means consumers pay more for their mortgages, pay higher fees and charges or the bank exits services. We won't let the banks get away with neglecting the community and haven't done that. What we have said to them is that banks have to take into account their obligations to the community, to the broader community, and they've got to do it. You have to change the attitude of the banks from the boardroom to the branch level. That is going to deliver real benefits to consumers.
REPORTER: In the US banks have social charters in several states and they are quite profitable. Why can't we have that here?
MINISTER: I understand that 500 banks close each year in the United States.
REPORTER: Are you saying this is because of the social charter?
MINISTER: If Governments over-regulate banking consumers pay higher mortgages fees; higher bank fees and they lose services. If the Government steps into banking, banks will exit. The Labor Party is about stepping into banking and it is come at a great cost. Now the Labor Party released their policy - it is one of the few policies they have released - it was a voluntary social charter. The chairman of the Australian Bankers Association has said that if you want to implement that we are going to exit services or it is going to cost higher mortgage rates or higher fees. The Labor Party has a problem because they want to impose a levy on the banks and they levy is going to mean more fees and higher mortgage rates for everyone in banking.
REPORTER: Mr Murray is also very critical of the pressure the Government is putting on the banks over home loan interest rates, the pressure Mr Howard has put on the Reserve Bank to cut interest rates.
MINISTER: We do not apologise for putting pressure on the banks for lower interest rates and less fees on bank accounts. We believe the banks have to deliver to the community real services and real benefits. But the heavy hand of regulation costs everyone, including consumers, more at the end of the day.
REPORTER: What is the difference in the Government imposing regulation on telecom company for a community service obligation and the same conditions on banks. I mean they are both very profitable sectors. What is the difference?
MINISTER: Telecommunications is about delivering a service. Banking is about measuring risk and it is about quantifying and placing a value on risk. And there is a monopoly on a whole lot of telecommunications services. Whereas banking is a very competitive and very global industry. We want Australian banks to be profitable, because the worse thing they can do is start making losses, but we also want them to start thinking about the communities that they are a part of. And it is very important that we understand that when Governments step in with over regulation, as a social charter would be, then the banks are either going to exit services, increase mortgage rates or increase bank fees.
REPORTER: Where do you draw the line on bank regulation. It can't be open slather for the banking industry?
MINISTER: The banks will never get open slather in Australia. It is a very difficult line to draw but at the end of the day if you can convince the banks, as I think we have over the last few months, that they have social obligations to the Australian community then it starts to change the way they deliver products to consumers. Now if you start to look at the products that are being delivered. ANZ announced that people over the age of 65 won't pay fees and charges. Westpac has made an announcement, and a number of other banks. The Australian Bankers Association on behalf of all the major banks announced there would be 5 million fee-free and low-fee accounts in Australia to service those people most disadvantaged in the community. Now they are delivering that because we are putting pressure on them without the heavy hand, the onerous hand of regulation. Once you start over-regulating and industry the industry starts to exit services. This is where the Labor Party have got it wrong. The Labor Party know it. The Labor Party know that if you over-regulate banking they will start to leave services behind. That is why the Labor Party have a so-called voluntary social charter. Now that voluntary social charter is now in tatters. So where does the Labor Party's banking policy go? Are they going to start to over-regulate banking? Well, consumers are going to pay a very high price for that.