Economists call for 'Aussiebank'

A screenshot from a Kiwibank ad campaign. Economists propose an Australian people's bank as an alternative to the major lenders. Photo / Supplied

CANBERRA - Australia has been urged to follow New Zealand's example and establish a Government-owned counter to the four big banks that dominate the nation's financial sector.

The proposal to create an Australian version of Kiwibank has come in an open letter from six of the nation's most influential economists in response to the increasing power of the Commonwealth, National Australia, Westpac and ANZ banks.

The Big Four also control New Zealand's banking system.

Like Kiwibank, the group proposed a new people's bank to accept deposits through Australia Post, and for it to be managed by the federal Government's Future Fund.

The independently managed investment fund was set up by former Prime Minister John Howard's conservative Administration to cover the Commonwealth's future superannuation liabilities.

The fund's board will also now manage three new funds established by the Labor Government to provide long-term capital for major infrastructure, health, hospital and education projects.

The economists' letter to Prime Minister Kevin Rudd and Treasurer Wayne Swan was reported by Fairfax newspapers yesterday, reflecting widespread concern at recent actions by the major banks.

The Big Four have increased their share of the mortgage market from 80 per cent to 92 per cent since the global financial crisis began, and have taken over smaller banks such as St George and BankWest, and other non-bank lenders.

They have also been criticised for failing to pass on in full the series of Reserve Bank cuts to the official cash rate, which now stands at 3 per cent.

Fairfax newspapers said the open letter also expressed concern at the way the banks were using privileged access to Government guarantees.

It said the banks were rushing overseas to expand, despite the fact that Australians were repeatedly told that "our banks were lucky not to have had substantial overseas exposures".

The letter was signed by economists Christopher Joye and Nicholas Gruen, both of whom advised the former Howard Government, Monash University professor Stephen King, management consultant Sam Wylie, Professor John Quiggin of Queensland University, and Melbourne Business School professor Joshua Gans.

Professor Gans told ABC radio yesterday that Australia used to have a people's bank in the Commonwealth Bank, and that the nation maybe should now have a Government-provided backstop with affordable accounts and affordable home loans.

"The main thrust of the letter was that there are many such issues to do with our banking system and it is so easy to become complacent given that Australia has weathered the global and economic storm quite well, and not think about these long-term policies," Professor Gans said.

The idea of a new people's bank has been supported by shadow treasurer Joe Hockey and Australian council of Trade Unions president Sharan Burrow.

But Swan's office said that no systemic review of the financial system was being contemplated.