Aussie Banks don’t need to be given the boot but they do need a Bootcamp….. to get the flab off and improve their fitness.
The best way to get our bankers fit and frisky is to force them to work harder and the quickest way of doing that is to remove a few of the crutches that they have been leaning on for far too long.
Get them out of the bean bags and out in the fresh air !
Exercise 1 Flex and stretch – Competition for deposits
Once upon a time, in the days of horse and buggy and pencil and paper, there may have been some practical reasons for denying permission to the general public and non-banks to open and operate deposit accounts at the Reserve Bank of Australia, and instead limit them to using central bank liabilities in the form of notes and coins.
But whatever justification there may have been in the olden days, in these days of computers and smart phones and internet banking, there is no good reason to maintain this restriction. The ability to open and operate a deposit account at the Australian central bank should be a fundamental right of all members of the Australian public. Forcing the public into business relationships with private companies so they can do something as basic as save public money (central bank liabilities) in a deposit account is absurd.
Allowing the general public and non-banks to transfer some of their bank deposits to the 100% safe and risk free RBA is a simple and gentle way of getting our flabster bankers off the couch and touching their toes. Simple because the software and systems required to allow the RBA to offer basic deposit accounts are readily available and have been used by banks around the world for decades. Gentle because it should involve “little sweat” for a banker to persuade their customers to stick around and not transfer all of their deposits to the RBA.
Keep in mind that the RBA deposit accounts will NOT pay any interest so the bankers will not be competing on price! The main thing going for the RBA accounts is that they are super safe as the RBA can never go broke. After all the RBA can create public money by making a few entries on its balance sheet. No private bank can do that. The best a private bank can do is create some IOUs in favour of its customers. Whether they can honour all of those IOUs is another question entirely.
So all a tubby banker need do to keep a hold on their customers is to offer enough interest or services to convince the customers that they should leave their money right where it is rather than transferring some of it to an RBA deposit account or to another form of investment involving a risk/reward trade-off.
How easy is that? With a bit of well paid work by the Mad Men (and Wacky Women) of advertising, convincing clients that their unsecured bank investments require a whiff risk should be no trouble.
Exercise 2 Jogging around the block – Reduce and remove the government guarantee
Having completed the limbering up exercises involved in allowing the general public and non-banks to open basic deposit accounts at the RBA, the leotard equipped bankers should now be ready for the next exercise, which is the reduction and ultimately the removal of the government guarantee of bank deposits which was introduced in the panic filled days of the GFC.
Currently the government guarantees bank deposits up to $250,000 per ADI. The removal of risk involved in the guarantee, is a bit like encouraging bankers to swig down gallons of soft drink on a daily basis. While a few glasses of sugar now and then may not do much harm, over time the knowledge that government will swoop down and protect unsecured investors (depositors) in banks is likely to result in a lot of fatty liver disease amongst our banking community. Everyone gets slack when they know that there is a bail-out if they stuff up. A fear of bank failure is good for the soul.
As most of our bankers should not engage in physical activity without consulting their doctor the process of reducing the guarantee can be completed in stages. Every 6 months the amount of the government guarantee will be reduced by $50,000 until after 30 months all bank deposit are no longer covered by a government guarantee.
30 months will be enough time for the general public and non-banks to process what the re-introduction of risk to private bank deposits means for them and whether they would like to move some of their deposits to the risk free deposit accounts offered by the RBA.
Exercise 3 Drop and give me 20 – Bank Deposits uncovered
With their biceps firming as the result of some gentle competition from RBA deposit accounts and the removal of the government guarantee of bank deposits, our increasingly frisky bankers will be ready for exercise three which is a prohibition on banks describing their at call unsecured investment accounts as “deposits”.
Even though the general public are free to study crusty dry legal decisions about the legal status of their ‘bank deposits’ the simple fact is they don’t and almost all of them think that if they deposit something they are entitled to get back what they deposited when they want it. A bit like leaving a hand bag at the cloak room at the start of a show.
Even though it is all the public fault for being confused about what a bank deposit is, there is no harm in making life easier for them by requiring the banks to rename their “deposit” accounts and call them something a bit closer to what they are, namely “at call unsecured investments”.
As a highly creative bunch, bankers will have no difficulty coming up with an attractive and hopefully less misleading alternatives to “deposit”. Some possibilities include:
- At call unsecured investment account ACUIA (pronounced “ak-u-i-a”)
- Banker Punt account
- Banker flutter account
- She’ll be right mate
- Do you feel lucky punk.
- Don’t be chicken
- What could possibly go wrong
Now it is likely that adopting a slightly less misleading name for bank deposits may cause a few more customers to move a few more of their deposits to a ridgy didge RBA deposit account (which as a real deposit account will be allowed to keep using the name) but the bankers will be able to reduce the chance of that happening by increasing the quality of services or amount of reward they offer to the nellies made nervous by the change in name.
In other words the bankers will have to work a bit harder to hold onto their customers who may find the returns of other investments more attractive.
Don’t worry lads and lassies, sweaty is sexy.
As you can see a wonderful summer bod for bankers involves just a few gentle exercises but like all exercise routines some gentle encouragement may be required to turn a burst of enthusiasm into a habit.
In this case the gentle encouragement will take the form of the following:
- A direction by the government that the RBA is to allow the general public and non-banks to open and operate “MyRBA” deposit accounts at the RBA by 1 January 2021. These accounts will pay no interest and transactions can be completed on-line or at offices of Australia Post or other agencies.
- A withdrawal of the government guarantee of bank deposits over 30 months
- Requiring banks to cease using the word deposit in connection with “at call unsecured investments”.
For all the essential equipment that you need for Banker’s Bootcamp see Bank Watch: Essential Bootcamp equipment.