The most important skillset when it comes to managing a business is capital management. This includes government.
In terms of capital management, it’s not just retail banking that needs to be overhauled in this country. Wholesale funding and banking regulation needs to be overhauled as well.
There are three levers to manage monetary policy. Qualitative, Quantitative and Regulatory (through Macro and Micro prudential measures.)
Qualitative measures are controlled by the RBA.
Quantitative measures are controlled by Treasury.
Micro prudential measures by APRA.
Macro prudential measures by no one. (Thanks to Paul Keating lifting capital control measures in 1985 which allowed our country to be flooded with foreign debt.)
Long story short, the left hand doesn’t know what the right hand is doing.
Furthermore because the government has outsourced all of these roles, neither the Treasury bureaucrats nor the politicians have a clue about monetary policy.
APRA should have never been outsourced from the RBA and the RBA should never have been outsourced from the Treasury.
All three departments need to work together to manage the economy through a measure of all three monetary levers.
An infrastructure bank via quantitative measures should be used to increase productivity and supply of essential services by funding State and Federal Governments to build Infrastructure.
APRA should regulate macro prudential measures as well as micro prudential measures by restricting foreign debt and foreign investment where it’s not in Australia’s interest.
The RBA should restrict the extent they manipulate interests to within a band of 3-7%. Lowering interest rates to zero or above 10% is purely destructive.
In the same way Australia needs a Federation Convention to overhaul and streamline Government powers the same needs to happen for monetary policy settings and the regulatory bodies.
The cost of capital mismanagement is killing our country.
Rural and Regional Affairs and Transport References Committee
01/12/2023
Bank closures in regional Australia
Senator RENNICK: It wasn’t that long ago—it’s probably been 30 or 40 years now—that the RBA and APRA were one organisation. APRA, I believe, was spun out in 1996 or 1997, when macroprudential controls were separated from quantitative easing controls. How does that work? One of the issues that we have with our banking system in this country is that we have so many different departments responsible for monetary policy and regulating the efficient transactions of goods and services in a productive manner. Do the Treasury and the RBA find it frustrating that the left hand doesn’t know what the right hand is doing?
Mr Preston : I wouldn’t characterise our engagements with the RBA or any of our regulatory colleagues as frustrating. The topic of how the Treasury and the regulators engage is an important one. We have quarterly meetings with the Council of Financial Regulators. Sitting underneath that council there are a range of working groups which all of the different members of the CFR participate in, and those are quite effective ways to bring some of that coordination. I think the RBA review—and I might pass to my colleague. In terms of issues like macroprudential policy, that is something where there are strong overlaps and interests from the different parties, but, through the CFR, we share perspectives and form views to make sure that we have a collective and considered understanding of what everyone’s doing.
Senator RENNICK: CFR includes the Treasury, APRA and the RBA?
Mr Preston : And ASIC.
Senator RENNICK: When the RBA—and I’ll be quite frank here—recklessly lowered interest rates to 0.1 per cent, that forced the government to lower the deeming rates on the pension, which meant we had to pay higher pensions. This is what I mean about your departments not necessarily working together in a manner—it just seems strange. The RBA is independent, but the Treasury isn’t. The decisions made by the RBA impact the Treasury. On the other hand, we had Paul Keating in 1985 lift total capital controls altogether, and now we have ING and Rabobank controlling agricultural loans in Australia because our big four are too lazy to do it. Do we need to review our monetary and macroprudential settings?
Mr Preston : We’ve just had a review of the RBA, which considered—
CHAIR: Senator Rennick, I’ve been listening to your questioning closely. Keep in mind the directive that we don’t ask officials for opinions on matters, but I’m happy to let the official answer as they see fit.
Senator RENNICK: It comes back to the fact that our big four branches are leaving the regions and we have ING and Rabobank being the big dominant lenders now in agricultural lending. APRA aren’t here anymore, but is that something you’re concerned about?
Mr Preston : Are we concerned about agribusiness lending? Is that the question?
Senator RENNICK: I suppose it’s hard with an opinion, but I look at it and think, ‘Why has this happened?’ Basically, we’ve now got our four major banks lending something like 70 per cent in retail mortgages. They’re highly vulnerable to the mortgage market. Maybe, when we relaxed those capital controls in 1985, we let the mortgage market rip and we turned our back on business, and that’s underlying the stability of our economy, especially our small businesses, who are finding it harder and harder to get loans, to the extent that major banks are now debanking genuine small businesses.
Mr Preston : There are a couple of elements to that. I think the debanking issues often relate to how banks are having to deal with anti-money-laundering and counterterrorism type issues. In terms of the agribusiness business-lending piece, there have been—ING, which you’ve mentioned, is not known for having a big branch network, for example. There are other banks that are active in that space. Some of them are relatively recent entrants who have quite innovative and novel ways of providing credit to small business and agribusiness, including through relationship banking services where the banker might travel to the farm or what have you. So I think we have seen some significant changes in how the banking sector is servicing the needs of businesses. I’m not trying to suggest that it’s necessarily perfect, but I would just point out some of those changes in the marketplace.
