Macrobusiness

Fixing Oz Banks: The critical Bank Royal Commission reform

The Banking Royal Commission is still in full flight and doing a great job turning a spotlight on the rotten, murky and often crooked Australian banking system but one desperately needed reform is already clear and should be recommended as soon as possible.

Critical Reform No 1

Every Australian must have the freedom to open a deposit account at the Reserve Bank of Australia.

And giving them that freedom requires only one simple reform.

The public must be allowed to open and maintain a deposit account at the 100% safe and publicly owned Reserve Bank of Australia.

With that one reform Australians can vote with their feet and move some or all of their savings from private banks to the 100% guaranteed Reserve Bank of Australia.

Private Banks are allowed to have RBA accounts,  so why allow the private banks to have access to supersafe 100% guaranteed RBA accounts but NOT the Australian public?

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It is a disgraceful state of affairs and for most Australians it means they are forced to maintain a deposit account at risky private banks who, as the Royal Commission hearings have made clear, simply cannot be trusted not to engage in shady and crooked practices.

Why should the Australian public be forced to choose between a private bank account (or the mattress or back of the freezer) and risk have a private bank “mine” their private transaction data, selling it to their business partners or using the information to target them for sales campaigns and banker debt products.

If people want to use Private Banks for their savings that is a matter for them but why not give Australians a choice.

One simple reform:

One simple reform is required. Allow every Australian to open a “MyRBA” deposit account at the Reserve Bank of Australia.

There are many other good reasons to allow every Australian to open a “MyRBA” savings deposit account at the Reserve Bank of Australia.

  1. It is 100% guaranteed – unlike the private banks the RBA cannot go broke.
  2. Finally Australians fed up with the private banks can vote with their feet.
  3. If Australians wish to transfer money to another RBA deposit account they need not involve a private bank at all. In other words “Private Bank free banking”
  4. If  private banks can have an account at the RBA every Australian should be able to.
  5. If the public have the option of a 100% safe account at the RBA there will be no need for the government to provide guarantees for deposits held at the risky Australian private banks.
  6. The “MyRBA” deposit accounts will be a lot more private than savings accounts at private banks which the banks currently ‘data mine’ so they can make money from selling information to their business ‘partners’.
  7. “MyRBA” deposit accounts will be available free of charge.
  8. If any transactions fees are charged for transactions over a certain amount per month they will be charged at cost.
  9. The RBA already regulates the payments system and thus providing access to automatic tellers and other means of accessing savings will not be difficult.
  10.  Australian Post Offices can offer over the counter services to those who don’t wish to use websites or smart phones apps to access their accounts and complete transactionss

What about interest?

Initially deposit accounts at the “MyRBA” will pay no interest.

However, they will be 100% safe and charge no fees and very low transactions fees if any at all.

A “MyRBA” deposit account will be the 100% risk free saving option.

People who wish to take some risk and earn some return on their money can leave some or all of their savings in the private banks, buy shares or invest in productive businesses.

The government may decide that a small amount of interest – perhaps an amount equal to CPI will be paid by the RBA on “MyRBA” balances to ensure that the account balances are inflation adjusted.  Naturally, if there is no inflation there is no need for a CPI adjustment.

Will the RBA lend out the deposits?

No.

The RBA is not in the business of taking on the risk of lending money.

There  are plenty of private, not for profit and other government agencies that are perfectly capable of assessing risk and lending money.   If people wish to earn income from investing some of their savings in organisations that lend they can do so but that is not the job of the RBA.

Conclusion

One simple reform that the Banking Royal Commission has demonstrated is needed right now!

Every party running candidates in the next Federal Election should make allowing Australian to open a “MyRBA” deposit account at the RBA a core promise.

 

Categories: Macrobusiness

4 replies »

  1. Great Idea. If the $250k limit of Govt guarantee on Bank deposits was removed, I would want a MyRBA account!
    MyRBA deposit accounts and a transaction card could be issued to primary school children, rather like Commbank did (does?), and be their e-moneybox for the coming cashless future.
    RBA should be right behind this idea because it gives them another lever for the money supply, by accepting large deposits only on ‘term”, the term-offered being the control.

    Liked by 1 person

  2. Relevant to the topic of whether everyone should be entitled to open a deposit account at the Reserve Bank of Australia.

    An interesting paper and podcast.

    Enjoy.

    https://greatdemocracyinitiative.org/wp-content/uploads/2018/06/FedAccountsGDI.pdf

    “Among the perks of being a bank is the privilege of holding an account with the central bank. Unavailable to individuals and nonbank businesses, central bank accounts pay higher interest than ordinary bank accounts. Payments between these accounts clear instantly; banks needn’t wait days or even minutes for incoming payments to post. On top of that, central bank accounts are pure money—economically equivalent to dollar bills—meaning they are fully sovereign and nondefaultable no matter how large the balance. By contrast, federal deposit insurance for ordinary bank accounts maxes out at $250,0001—a big problem for institutions with large balances.”

    https://itunes.apple.com/au/podcast/macro-musings/id1099277290?mt=2&i=1000416861700

    Liked by 1 person

    • Having just scanned the pdf, I see that the systemic benefits of a FedAccount (an interest-bearing MyRBA account) are spelt out:

      “If adopted on a large scale, FedAccounts would bring about less obvious, but no
      less profound, systemic changes. Financial stability would be dramatically
      enhanced: we expect that FedAccounts would crowd out unstable, privately
      issued deposit substitutes, which are one of the driving forces behind financial
      instability. Monetary control and monetary policy transmission would improve:
      current problems with “pass through” of policy rates would diminish or
      disappear. And far from being fiscally expensive, we expect FedAccounts to
      generate revenue for the federal government—possibly a lot of it—all while
      imposing minimal or potentially zero user fees.”

      “Monetary policy transmission and reducing subsidies to banks. If
      broadly adopted, FedAccounts would improve both the efficacy and the
      distributional fairness of monetary policy.”

      “Importantly, migration to FedAccounts should not be expected to affect the
      quantity or cost of credit in the broader economy. There is strong empirical
      evidence of a disconnect between banks’ lending rates and their deposit costs.
      ….., if bank lending rates did rise postmigration
      and this had a macroeconomic impact, the central bank would respond
      with monetary easing, reducing borrowing rates for all borrowers without rent
      capture by banks.”

      Liked by 2 people

      • Yes – it is nice clear description.

        It is very hard to think of solid reasons against it especially if introduced as a voluntary option.

        As the paper indicates the banks are likely to object because they love those dirt cheap savings account ‘loans’ they get from the general public at the moment.

        Liked by 1 person

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