Banking Reform in Australia

Press, Volume XCV, Issue 28262, 27 April 1957, Page 10

Banking Reform in Australia

The Australian Government’s intention to separate the Commonwealth Bank from the Commonwealth Trading Bank was recently announced by the Prime Minister (Mr Menzies). Mr Menzies also announced that the “ special accounts ” procedure was to be replaced by a system of reserve deposits. The two reforms are more closely connected than might at first sight appear to the overseas observer. One of the declared aims of the Commonwealth Bank Act (the famous “ Chifley Banking Act ”) of 1945 w-as “ to ensure the develop- “ ment and expansion of the ” bank’s general banking func- “ tions by active competition “ with the trading banks To further this “ active competi- “ tion ”, the bank’s general banking business was concentrated in a general banking division, now the Commonwealth Trading Bank. The Commonwealth Trading Bank handles about 12 per cent, of all trading bank business in Australia. The 1945 act also established the special accounts system which, in its present form, empowers the Commonwealth Bank (in its capacity as central bank) to “call up”, or “freeze”, up to 75 per cent, of the increase in a bank’s deposits during a year. The general manager of the Commonwealth Trading Bank is appointed on the recommendation of the Commonwealth Bank, and there has been considerable interchange of staff between the two banks. Dr. H. C. Coombs is governor of both banks. Such a marriage between the central bank and one of their rivals has naturally made the other trading banks distrustful of the Commonwealth Bank. The “private” trading banks (so called to distinguish them from the Commonwealth Trading Bank, the States’ trading banks, and several other local trading banks) have claimed that the interchange of staff between the Commonwealth’s central bank and its trading bank has “dam- “ aged the confidence which “ should exist between a central “ bank and the trading banks ”. Since the return of the i Menzies-Fadden Government in ■ 1951 the trading banks have 1 been less critical of the adminis- ! tration of the special accounts provisions than of the principle < behind them. In a recent state- \ ment, a spokesman for the private trading banks said they I were concerned with “what 1 " could happen under the exist- , • ing legislation in other hands, t

“. . . The Chifley banking act “of 1945 was designed to “ squeeze the trading banks out “of existence by putting im- “ possible controls on them ”. The trading banks asked for a statutory reserve ratio of 15 per cent, of banks’ deposits, with a maximum of 25 per cent, to be called up by the central bank in cases of “emergency”. Mr Menzies has not committed himself on the details of his system of “ reserve deposits ”, and he may well insist on a more flexible system (such as operates in New Zealand) than that suggested by the banks.

The broad outlines of the changes proposed in Australia are clear enough, however, to indicate the new system which will emerge from them. The banking structure in Australia will then be similar, in many respects, to the New Zealand structure: a central bank concerned with ' controlling the supply of money and with general monetary policy; - a State-owned trading bank in direct competition with the other banks, but independent of the central bank; and a number of other trading banks owned by thousands of shareholders. With this general framework New Zealand’s recent Royal Commission found little fault, and there is no reason to doubt that it will serve Australia equally as well.