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Bank Guarantee Raises Serious Questions

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In a recent Senate hearing, I questioned the government on its decision to include a standing appropriation—an open-ended budget allocation—in its Pacific Banking Guarantee legislation. This approach bypasses the annual appropriation process, removing Senate oversight and public transparency.

The Pacific Banking Guarantee is a scheme whereby the Federal Government guarantees the operation of banks across the Pacific. If these banks encounter financial difficulties, the Federal Government will bail them out. Why this is the business of the Australian Government escapes me. Why banks such as the Commonwealth and ANZ require a Federal Government guarantee, despite earning profits exceeding $15 billion annually, is a question they refused to answer. The Guarantee itself is worth no more than $2 billion—even in the unlikely event of a total loss. This Guarantee has been provided to give the Big Four banks a competitive advantage over other banks and financial institutions. With this Guarantee, they can borrow money at lower rates, thereby increasing their profits and creating an “I owe you one” sense of obligation to the Federal Government. I assume Minister Bowen intends to leverage this influence to “encourage” investment in wind and solar energy, despite the questionable economic viability of such ventures.

This is how government operates: influence-trading using taxpayers’ money.

Standing allocations cannot be questioned, and the only way to halt this flow of money to our major banks is through legislation that overturns the allocation. Given that the Greens have supported big banking in this country throughout the Albanese Government’s term – alongside the Government itself – any effort to restore accountability to the Pacific (big) Banking Guarantee is going to fail.

This reflects the contempt of the Albanese Government. The ALP is proving to be even bigger corporate lapdogs than the Liberals were.

Transcript

Senator ROBERTS: The Standing Committee for the Scrutiny of Bills requested a justification for why this bill includes a standing appropriation rather than being included in the annual appropriation bill, which would give the Senate oversight. Please explain why a standing appropriation is required. 

Senator CHISHOLM: Thanks, Senator Roberts, for the question. A special appropriation is more suitable for meeting possible liabilities than annual appropriations. While the likelihood the Commonwealth will need to make a payment is very low, we may be urgently required at any time to meet liabilities arising under a guarantee, which may fall outside the usual budget cycle. This means the annual appropriation process may not be available within the timeframe any liability falls due.  

Without a special appropriation, it is possible parliament will be recalled to pass an urgent appropriation or the Commonwealth can risk defaulting on its liabilities. The special appropriation is not proposed to have a direct dollar limit, as this provides the Commonwealth with flexibility to ensure it achieves a significant national interest objective, securing an Australian banking presence in the Pacific over the long term.  

The Commonwealth would not provide an unlimited guarantee, however there may be circumstances where the maximum amount guaranteed under the appropriation could change. This includes if the Commonwealth entered into a new agreement with another Australian bank and the legislation limits on the types of guarantees the government can provide to guarantees—only from an ADI banking business in the Pacific region. Specifically, the legislation limits the guarantee to only the ADI’s Pacific operations. 

Senator ROBERTS: So it’s an open-ended budget allocation. The guarantees being provided by this government are commercial-in-confidence. This means the Senate will not have oversight on what the government is agreeing to. Is that correct? 

Senator CHISHOLM: In terms of reporting obligations, any Pacific banking guarantee, including the ANZ agreement, will contain mechanisms to ensure a bank’s compliance with its obligations. This includes regular reporting on the total amount of guaranteed liabilities and the compliance with bank commitments as well. 

Senator ROBERTS: The duration of the ANZ guarantee is 10 years, meaning this government is binding future governments. Can the federal government withdraw from a guarantee at any time in those 10 years? If so, is there any sunset clause or time limit to the guarantees? 

Senator CHISHOLM: It’s a commercial agreement that’s been entered into with the Commonwealth. There is no sunsetting clause. 

Senator ROBERTS: I am told the World Bank is also working on a plan to assist correspondent banking intermediaries in the Pacific. Why didn’t you join that international effort, and will you use what they come up with as a way of sunsetting this arrangement? 

Senator CHISHOLM: Any Pacific banking guarantee is expected to complement the World Bank’s Pacific Strengthening Correspondent Banking Relationships Project, the CBR project. The government strongly supports the World Bank’s work on this in terms of the work they are doing in the Pacific. 

Senator ROBERTS: If you have strong confidence in the World Bank, why not let the World Bank do it? 

Senator CHISHOLM: Phase 1 of the World Bank project will establish a correspondent banking relationship provider of last resorts, which countries can call upon should they lose their financial correspondent banking relationship in a particular currency. It is intended to be a fallback for when there is no other commercially viable option. 

Senator ROBERTS: This bill does not specify what is being guaranteed, so let me ask. Does the guarantee extend to the Australian government guaranteeing loans by Australian banks to the governments of Pacific nations? 

Senator AYRES: Senator Roberts, we’ve just had a small changeover. I’m just trying to ensure that I can give you accurate information. The Commonwealth provides a limited guarantee to ANZ, under this legislation, in connection with banking operations in nine markets across the Pacific and Timor-Leste.  

Those markets are Cook Islands, Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu. The guarantee only covers certain eligible liabilities, and it is only triggered if certain trigger events occur and result in a loss to ANZ. The Commonwealth has only provided the guarantee for certain eligible liabilities in order to minimise the risks and potential costs of any Pacific banking guarantee to the Commonwealth and to mitigate any potential competition or market distortion risks in Pacific financial markets and the Pacific banking sector.  

To preserve the non-distortionary mechanisms in the guarantee, the government will not be disclosing the specific terms of the guarantee, including the types of exposures that are covered. If it assists Senator Roberts, the government was, of course, provided with extensive commercial advice on the guarantee, including around the risks, and commercial risk assessments found the likelihood of a default to be very low. 

Senator ROBERTS: I appreciate your statement that you’d like to give me accurate information, but you didn’t answer the question. I take it that you can’t answer the question of whether or not the Australian government is guaranteeing loans by Australian banks to the governments of Pacific nations. 

Senator AYRES: I’ll try and answer a little bit more directly, if it assists. The reason that I answer it in the way that I do, Senator Roberts, is that the advice that is provided and the terms of the guarantee are, of course, commercial in confidence, for policy reasons, in particular so that they don’t distort the banking and financial services markets in the Pacific. I’ll get the team behind me to correct me if I answer this incorrectly.  

The question about the support that the Australian government provides to Pacific island countries is quite different to this set of arrangements, which is about ensuring that banking services are provided and that there is trade, the free movements of goods, investment and all of the things that go with having banking services provided with the facilitation and support of the Australian government. I hope that assists; I’m not sure that it will. If you’ve got further questions, I’ll endeavour to answer them. 

Senator ROBERTS: It doesn’t answer the question, but I’ll come back to it later. Minister, Australian banks like the ANZ raise money to lend in the market, issuing bonds and debt securities. If the intended use of that capital is to issue government-guaranteed loans to Pacific nations, which this bill would allow, does that not give banks like the ANZ a competitive advantage in the capital market? And is any oversight intended of the capital raising of Australian banks to make sure they are honest in their representations to the capital market? 

Senator AYRES: Any banking guarantee in the Pacific, including this agreement, will contain mechanisms to ensure a bank’s compliance with its obligations, which include regular reporting on the total amount of guaranteed liabilities, and to ensure compliance with bank commitments. There are measures undertaken in order to deal with that concern, which is at present, I would argue, theoretical.  

I hope that the financial markets in this area lift to a point that is consistent with the kind of development, growth, investment and trade that the Australian government is working with our Pacific partners to facilitate. That is in their interest and in our interest for that to occur. The kinds of measures that you’re talking about—I’ll put that backwards—do not have a distortionary effect on capital markets or on financial markets.  

There is extensive work that sits behind this that has been directed towards achieving that outcome. ANZ has made a number of commitments to its Pacific operations in the Cook Islands, Fiji, Kiribati, Papua New Guinea, Timor-Leste, Tonga, Samoa, the Solomon Islands and Vanuatu in exchange for this guarantee that includes maintaining face-to-face banking services and enhancing the ANZ Bank’s services, including digital services. That is important for people and businesses and economic growth and investment in each of those states.  

It supports ongoing access to correspondent banking services in the Pacific and international money transfers, including the Australian dollar but also the New Zealand dollar and the US dollar. It will also maintain fee-free remittances for ANZ customers. That is important for facilitating more trade and more transactions. It will involve investing an additional $50 million to enhance the ANZ’s digital banking offering in the Pacific, excluding in Papua New Guinea, again, mobilised by some of the issues about making sure that the effect here is to support providing banking services where they are at risk.  

The uplift that is engaged there will impact the ANZ’s retail banking operations everywhere, except for Papua New Guinea, where ANZ today currently only offers institutional banking services that play an important role for the mining sector and other parts of the Papua New Guinea economy. Alongside this, there are efforts to continue to support and promote financial inclusion and literacy, and ANZ will continue to support Pacific countries in terms of their infrastructure financing, in line with the bank’s credit risk policies.  

That is the nature of the impact of the guarantee, in terms of capital markets. It should not be conflated, of course, with the efforts that the Australian government engages in through EFA and various efforts to support infrastructure development and economic development more broadly in the Pacific. This is about supporting the banking infrastructure—maybe I shouldn’t say ‘infrastructure’, because it’s confusing—the banking retail network and digital services that sit alongside that throughout the Pacific states.  

Senator ROBERTS: I noticed that, in starting that answer, you used the words, ‘I hope that the financial markets lift’—I hope—to the trade, yet, in Australia, we had severe breaches of the law by senior banking and financial institution officials and no-one went to jail—no-one! You also said that you’d like to maintain face-to-face banking services in the Pacific islands, yet we can’t get that here in Australia. Minister, is this bill just putting more money in the pockets of the big four banks by lowering their borrowing costs relative to other banks? 

Senator AYRES: The short answer to that question, Senator Roberts, is no. It does not achieve that objective in any practical way. It’s not one of the principles that’s engaged here. Australia does have a very well-regulated banking sector, and that is a national asset for Australia. That is important for our capacity to deliver investment and growth and financial transactions and security for borrowers and lenders and projects.  

In times of financial stress, our well-regulated banking sector is a fundamental part of Australia’s economic resilience in what is a pretty challenging world that we live in. That is not related to what is being provided for here. There will always be, as you’ve alluded to, bad actors, bad things happening, malfeasance, errors, omissions or whatever in any system. I have no argument with that. That is what the regulatory sector is designed to deal with. This situation is about extending banking services that might not otherwise be extended to a part of the world that needs banking services, and it is in Australia’s interest for those to be provided.  

This ensures that, through arrangements supported by this legislation and also by the commercial and non-distortionary measures, it’s provided in a way in which there is no disadvantage to the Australian banking sector—and, when I say ‘banking sector’, what I mean is the kind of services that customers and businesses would need and expect from the Australian banking sector. Quite the contrary to the final suggestion in your question, this is not a matter of the government paying an amount to the ANZ; in fact, it’s quite the reverse.  

The ANZ pays an annual fee with respect to the guarantee, and the Department of Finance and the Commonwealth’s commercial advisor have provided advice on the annual fee. That fee amount, for some of the reasons that you’ve alluded to in some of your previous questions and in order to ensure that it doesn’t have a distortionary effect, is commercial in confidence and cannot be disclosed publicly. The guarantee isn’t a subsidy. It’s not a bailout. The government will not be providing any direct funding to Australian banks for their Pacific operations. 

Senator ROBERTS: That sounds like a protection fee. Let’s get this straight. Banks have no risk—they have a guarantee if they have any losses—so banks cannot lose, so that sounds like a protection fee. Minister, who drafted your bill for you? The banks? 

Senator AYRES: Certainly not. That is certainly not the case. This bill is drafted, this arrangement has been struck, in order to support regional communities in Australia and Pacific nations to access banking services. That is in Australia’s national interest. That is fundamentally what is engaged here. For Pacific nations, remaining connected to global finance is one of their highest priorities because it supports their own economic development and their economic resilience. Investment in capability; investment in new businesses; microfinance for small businesses; and making sure that project finance can be accessed for the kinds of mining, development, manufacturing and other projects that deliver good jobs, stable investment, national economic growth, regional interdependence and economic resilience in the region—all of that is in Australia’s national interest.  

Those are the questions that are being engaged here. In terms of regional Australia, this government has secured commitments from the banks that previous governments have failed to secure—a moratorium on regional bank closures from the four major banks, as well as an agreement to increase their commitment to, and their investment in, Bank@Post. I grew up in a little country town. I know how important those services are. And I know you would not be so mischievous as to suggest that there is a relationship between the services provided to regional Australians through their banks and the government’s determination to protect that— 

CHAIR: Minister, I hate to interrupt you, but it’s 1.30. 

Progress reported. 

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In Australia the Bank Robs You!

If you rob a bank, you go to jail. If the bank robs you, no banker will go to jail and they won’t even pay a fine. Maybe it has something to do with the Big 4’s top shareholders – Vanguard, Blackrock, State Street, JP Morgan, Charles Schwab, HSBC and others.

After 6 years of inquiries and a Royal Commission, the final Financial Accountability Regime Bill contains no accountability for bad bankers. We supported Senator McKim in trying to make sure bankers could be liable for personal fines if they misbehaved but the Greens caved, joining Labor to pass through the bill without the penalties.

One Nation won’t stop our fight to make bank executives accountable and find justice for their victims.

Transcripts | Speech and Questions

Yesterday, as a servant to the people of Queensland and Australia, I spoke on Senator McKenzie’s matter of public importance regarding the decision by Minister Catherine King to give Qantas a substantial commercial advantage in the Qatar Airlines application for more flights to Australia. I pointed out that the Qatari government owns Qatar Airlines, while Qantas’s most influential shareholders are the merchant banks that invest money on behalf of the world’s richest predatory billionaires. I raise the question: who does this government represent? Is it everyday Australians or foreign wealth?

Here we are again, the very next day, debating the Financial Accountability Regime Bill 2023—a bill devoid of financial accountability. A financial accountability regime bill with no accountability is a bill that could more rightly be called the ‘Letting bank executives do whatever they want bill 2023’. Banking executives in Australia are a protected species for the same reason Alan Joyce and Qantas are protected: crony capitalism.

The big four banks have almost identical major shareholders. They have the same owners as Qantas, including Vanguard with $15 billion in shares in the big four banks, BlackRock with $5 billion, and then the usual suspects with smaller holdings, such as State Street, JP Morgan, Charles Schwab, HSBC and others. With these common owners making up a controlling share, it means we do not have four big banks. We have one monstrous bank with four divisions working under four logos. Why would the banks compete with each other when that competition will lessen their profits and, in turn, reduce the flow of dividends to these investment funds?

Our banking legislation, our checks and balances, were not written for an eventuality where investment funds with A$40 trillion in funds available bought controlling shareholdings in all the big four banks and used those shareholdings for their own financial benefit in a way that reduces competition and has reduced competition. Investment funds get assistance from complicit executives. Those complicit executives know the deal when those same investment funds elect directors who then employ the executives. The same executives know that they have to follow orders to keep their jobs and their fat pay cheques. The same executives then pursue the now infamous ESG measures to ensure that a bank lends only for projects that meet so-called environmental, social and governance standards. ESG is shorthand for using banks to enforce political objectives, like enforcing net zero by defunding coal, gas and most mining while lending for speculative investments in hydrogen and similar unproven fantasy technology.

Why would banks take a course of action that puts shareholders’ funds at risk? It’s because these big investment funds own the companies that profit from those investments. ESG is nothing more than the billionaires who run the world using their ownership of our banks to lend to themselves for risky investments that, if they fail, will reduce their equity. It will reduce the equity of mum and dad investors more. They carry the risk. Everyday Australians are shouldering the risk of these misinvestments that benefit only the world’s most wealthy individuals. As George Carlin famously said, ‘It’s a club, and you’—everyday Australians—’ain’t in it.’

I wonder if whoever made the decision to take personal financial penalties out of the financial accountability regime is in the club. Are you? Those penalties were in this legislation when the Turnbull government introduced it—although, of course, it is not being used, because nobody in the Liberal Party or the Labor Party has the guts to take on these investment funds—least of all, it would appear, Assistant Treasurer, Stephen Jones, who authored this bill.

Everyday Australians are feeling the pain from the failure of this government to govern without fear or favour. Bank branch closures and de-banking are hitting everyday Australians hard, and the banking cartel just sit back and count the profits—record profits. The most glaring exclusion from this bill is the absence of civil penalty provisions such as fines for bankers. To translate that into plain English, it means that senior bankers who behave badly will not, under this bill, face personal fines—no fines at all.

Making bad bankers pay big fines isn’t an idea One Nation and the Greens pulled out of thin air. The Treasury department was the one that initially proposed it. The proposal paper for the financial accountability regime that Treasury published in 2020 included civil penalties for bad bankers. The big bank lobby circled the wagons, mustering all of their high-powered lobbyists and industry groups to browbeat Treasury into removing the personal civil penalties. When the Morrison coalition government introduced the 2021 version of this bill, civil penalties had disappeared. Labor had a chance to fix that when they introduced their versions of the bill, first in 2022 and now with this one in 2023. Instead, the Assistant Treasurer and Minister for Financial Services, Stephen ‘I love the bankers’ Jones, has joined Labor at the hip with their crony-capitalist banking suck-up mates in the coalition.

This bill’s time line is a glaring example of what’s wrong with our country’s governance. In 2017 I chaired the inquiry of the Senate Select Committee on Lending to Primary Production Customers, while at the same time we called for a royal commission into the banks. The horror stories we uncovered in that Senate inquiry were enough to make my skin crawl and my stomach churn: banks stealing land and even livestock straight out from under farmers’ feet, cattle rustling, foreclosing on properties where there hadn’t been breaches of loan repayments, preying on vulnerable people, stealing whole farms, and rewarding mates amongst insolvency practitioners and other farmers. Rabobank, after being fined hundreds of millions of dollars for serious breaches in America, was destroying families in our country. All under your watch.

The evidence of banking practices we uncovered during that inquiry forced the government’s hand. With the testimony of those victims, the government had no option but to call the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This bill now before us supposedly implements recommendations of that royal commission. What a joke! It’s been more than six years since the Senate select committee I chaired was established. At the end of that long road not a single banker has been thrown in jail for their criminal actions—not one. To my knowledge, not a single banker has paid any civil penalty for the outright fraud uncovered in the royal commission—not one. At the end of the long road to this bill we have something that still will not impose personal civil penalties on bankers who breach their accountability regimes. And you guys just let it continue. If you want to know who holds all the power in this country, look no further than the fact that civil penalties have been dropped.

One Nation will be supporting Senator McKim’s amendment to insert civil penalties back into the bill, but, alas, that failed. If that amendment had been successful, we would have supported the bill. Without that amendment this bill does not go far enough to place accountability on misbehaving bankers, and we cannot support its passage. Minister, why does this bill not contain civil penalty provisions for senior bankers who fail their accountability obligations?

Minister Gallagher: Thank you and I acknowledge Senator Roberts’ speech. I don’t agree with large parts of it but in this bill there are penalties within the legislation before us.  They will, individuals can lose deferred remuneration – they can be disqualified from being able to work in the industry and there are individual civil penalties for assisting an entity’s contravention of obligations.

Senator Roberts: Minister, are you aware who owns our big four banks? Let me read the list of shareholders of those banks right now so that you may have some idea of where I’m going. Shareholders of National Australia Bank Limited are the Vanguard Group, with 3.3 per cent; BlackRock Fund Advisors; Vanguard Investments Australia Ltd; Norges Bank Investment Management; State Street Global Advisors; Colonial First State Investments; Goody Capital; BlackRock Advisers; Netwealth Investments; and Caisse de depot et placement du Quebec. Let me read them for the Commonwealth bank: Vanguard Group, BlackRock Fund Advisors, Vanguard Investments Australia, Norges Bank, Goody Capital, Australian Foundation Investment Company Limited, BlackRock Advisors, Netwealth Investments, FIL Investment Management and Vanguard Global Advisors. Westpac: the Vanguard Group, Vanguard Investments Australia, BlackRock Fund Advisors, Norges bank, State Street Global Advisors, Goody Capital, Advance Asset Management, BlackRock Advisors, Australian Foundation Investment Company, Netwealth Investments. ANZ group: the Vanguard Group—is there an echo in this room? BlackRock Fund Advisors—there’s that echo again! Vanguard Investments—it’s still here! State Street—another echo! Goody Capital—another echo! BlackRock Advisors—another echo! This place is an echo chamber, and that’s probably very appropriate. There’s Netwealth Investments—another echo! Dimensional Fund Advisors—they’re only in ANZ. There’s Vanguard—another echo! BlackRock investment—another echo! Minister, are you aware of this?

Minister Gallagher: I’m certainly aware there’s millions of shareholders in Australia’s big banks and across Australia’s financial system, yes.

Senator Roberts: So you allow it to continue with no accountability. It seems we don’t have 4 big banks. We have one monstrous bank working under 4 logos, 4 divisions. There’s no, there’s no difference between their primary products and services and their ways of operating. Their product, services and operations are similar. So similar that I recognised, as Chair of the Senate Select inquiry into lending the primary production customers back in 2017, that they operate as one. They are a cartel. Are you aware of the common ownership and common practice, product and services of these banks?

Minister Gallagher: Well, that information is available, as you know, to all of us.  It’s transparent around shareholding in big companies in Australia.  So I’m aware and you are aware, and you’re aware because that information is available.

Senator Roberts: The difference, Minister, between you and I is that I want to do something to fix it. Minister, what will your government do about protecting Australians from these parasitic predators?

Minister Gallagher: Well, I don’t agree with the language that you’ve used Senator Roberts.

Senator Roberts: The Minister says, in effect, that she agrees they are parasitic predators. So legislation needs to have teeth. Without teeth, massive regulation protects the Big Four from accountability because of the complexities needing deep pockets for deep pockets for lawyers. A farmer, small businessman, even a woman, cannot afford the lawyers that the big banks resort to at the drop of a hat because they’re protected by deep, complicated legislation. These barriers are barriers to accountability. Are you aware of that? And what do you plan to do about it?

Minister Gallagher: Well, no, I don’t agree with that. The bill we are debating or we completed debated of yesterday is the Financial Accountability Regime Bill. So no, I don’t agree with that. And I do believe since the Royal Commission there has been significant increase in and protections for us through legislative reform like this to make sure that we get a properly regulated and accountable financial system. This is one piece of that. So no, I don’t agree with you.

Senator Roberts: Minister, these regulations provide barriers to entry of new competition to the Big Four or the Big One. Are you aware of that and what do you plan to do about it?

Minister Gallagher: Sorry if your questions about do I think this is a barrier to competition? No.

Senator Roberts: That wasn’t my question. The massive amount of complex regulations, they’re protecting the big four banks, they’re a barrier to competition.

Minister Gallagher: I mean in a sense you’re arguing in a circle because we are putting in place legislative protections and regulations to make sure there is a stronger financial system in this country to deal with some of the problems that we saw come through in the lead up to and during the banking Royal Commission to protect consumers and to make sure that we have a strong, profitable, well led banking system financial system in this country. This legislative response is part of that. The regulations are there to offer that protection. They’re not there to limit competition.

Senator Roberts: They’re effectively working as such Minister. The government’s bank deposit guarantee scheme is worthless. Firstly, it’s not automatic, because the Treasurer has to invoke it and if he doesn’t, there’s no guarantee of bank deposits. Secondly, it covers only a maximum of $80 billion out of $1.3 trillion in bank deposits. For example, the Commonwealth Bank, I understand, has 30 million deposit accounts, meaning an average of $670 per deposit. Meanwhile, the previous government passed a bank bail-in provision that your party supported. These are other ways in which banks avoid accountability for their mistakes and greed. They take none of the risk and all of the profit. They have no penalty for excessive greed causing failure, because government bails them in. When will your government start protecting Australian citizens and revoke the bail-in, for example?

Minister Gallagher: Well, the work that has come out of the royal Commission, of which this is a part of, is precisely about that, Senator Roberts.

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Only $80 billion of $1.2 trillion in deposits protected

Our banks are bastards, but they are well capitalised. Yet, if they were to run into trouble as is happening overseas, our government is only guaranteeing 7% of Australian money in the bank.

Transcript

Senator ROBERTS: My question is to the Minister for Finance, Senator Gallagher. Last week I asked questions about the funding for the deposits guarantee scheme, which was designed to protect the money in the bank accounts of everyday Australians—capped at $250,000 per account, $20 billion per bank and $80 billion total. Minister, when the scheme was brought in, the eligible deposits being protected were $650 billion. According to statement 9 of Budget Paper No. 1 of the October 2022 Labor budget—your budget—eligible deposits are now $1.2 trillion. How can $80 billion possibly protect $1.2 trillion in deposits?

Senator GALLAGHER (ACT—Minister for the Public Service, Minister for Finance, Minister for Women, Manager of Government Business in the Senate and Vice-President of the Executive Council): I think this question goes to some of the concerns that we’re seeing in global financial markets at the moment, and the impact on some banks overseas and some concerns that Senator Roberts is raising about the potential for impact here in Australia. The answer is the same as I gave last week.

Senator Rennick: You don’t know how to count.

Senator GALLAGHER: Thank you, Senator Rennick. Would you like leave to speak to this question or am I allowed to? You’d like to, would you?

The PRESIDENT: Minister Gallagher, address your comments to those opposite through the chair. Senator Rennick, resume your seat.

Senator Watt: Tell us about your Masters in Applied Finance!

Senator GALLAGHER: I know responding to interjections is disorderly, but Senator Rennick’s got verbal diarrhoea, it seems, this question time. He can’t keep it in. As I said last week, this is something the government is monitoring closely. In fact, the Treasurer is being briefed twice a day on what’s happening overseas, and is also being provided with feedback from regulators and from the banking system here. I think it is very good, and I would think that it’s something that this Senate would welcome, that our financial markets and our banking system are well regulated, well led and well capitalised, with good liquidity, and we are not seeing the issues that are being seen overseas. I did undertake, and I’m not sure if we’ve done this, to provide you with a written response to the question that you raised last week. I’ll chase that if it hasn’t got to you, as well as anything further I can provide in relation to the answer I’ve just given.

The PRESIDENT: Senator Roberts, your first supplementary?

Senator ROBERTS: My constituents, as I expressed last week and in the last question, are concerned. Minister, the protected amount is not indexed and, because of inflation, would need to be increased to $380,000 per account and $115 billion overall just to cover the same amount as the scheme did in 2008. Minister, will you increase the caps on the bank deposit guarantee to make up for inflation since 2008?

Senator GALLAGHER: In line with the answer I gave last week, of course the government would respond in relation to concerns that were raised about the operation of our banking system and the impact it was having here. We are not seeing that. I think Australians should be reassured that the Australian banking system is resilient and that all of our banks, as I said, are well capitalised and have strong liquidity coverage. The Treasury and regulators are closely monitoring the situation about potential impacts for Australia—and when I say that, I mean very closely monitoring. I can understand that people watching what has happened with Silicon Valley Bank and Credit Suisse would have raised concerns. I can understand that. The response is that since the GFC and since the banking royal commission there are measures in place to ensure the strong performance of our banking system, and we don’t have any concerns about it.

The PRESIDENT: Senator Roberts, a second supplementary?

Senator ROBERTS: Reviewing the minister’s answers, I have five questions on the guarantee so far. Firstly, the guarantee has not been adjusted for inflation, and so it offers 34 per cent less protection than when it was legislated. Secondly, the guarantee is not funded. There is no money available to implement it. Thirdly, the scheme only covers 7c in the dollar of deposits. Fourthly, the minister has refused to commit to activating the scheme if it was needed. Minister, can you explain why constituents should not conclude, as many have, that the bank deposit guarantee is a fraud and a lie?

Senator GALLAGHER: I don’t agree with that representation by Senator Roberts at all. I have answered the question in a general sense by saying that, if there were concerns as we saw in the GFC, of course the government, and I presume the parliament, would act. The point I’m trying to make is that at this point we don’t have concerns. We do not share the concerns. In fact, we’ve been given very strong reassurance by the regulators, by the banks themselves and by the systems that have been put in place by this place and the other place to ensure that we have a strong, well regulated, well capitalised banking system to precisely insulate from some of the financial instability that we’re seeing elsewhere. Yes, of course, the government would respond if we had to. At this point in time we are assured that that’s not the case.

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Bail-in loophole to be remedied

One Nation Senator Malcolm Roberts met with the government today and received reassurance that, despite his anti bail-in bill being voted down 12-32, the loophole that allows a bail-in will be remedied.

Senator Roberts said, “The public needs to know that their savings are safe from failed banks and the vote against my bill fails to offer this assurance.”

“There is no ambiguity that our deposits are indeed at risk of being used in a bank bail-in and I assure all Australians that I am resolute in my fight for security of bank deposits.”

The anti bail-in bill closes the loophole left in previous legislation that gives Australian Prudential Regulation Authority (APRA) or the banks the power to order a bail-in of depositors’ funds in the event of bank failure.

Senator Roberts added, “Our aim is to ensure that APRA and the banks never have bail-in powers.” “This is an exceptional opportunity to restore confidence in the Australian banking sector and to attract deposits from other countries seeking more security.”

Senator Roberts said, “The public needs to know that their savings are safe from failed banks and the vote against my bill fails to offer this assurance.”

“There is no ambiguity that our deposits are indeed at risk of being used in a bank bail-in and I assure all Australians that I am resolute in my fight for security of bank deposits.”

The anti bail-in bill closes the loophole left in previous legislation that gives Australian Prudential Regulation Authority (APRA) or the banks the power to order a bail-in of depositors’ funds in the event of bank failure.

Senator Roberts added, “Our aim is to ensure that APRA and the banks never have bail-in powers.” “This is an exceptional opportunity to restore confidence in the Australian banking sector and to attract deposits from other countries seeking more security.”

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Questioning Reserve Bank of Australia (RBA) – Cash Ban and Bail-In

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One Nation has led the fight in the Senate against the Cash Ban bill, which makes any cash transaction over $10,000 illegal. Our efforts stopped the bill from passing, but the Government has not formally withdrawn the bill. At this estimates we started a campaign to have the bill removed from Senate business permanently. Our first questions asked the Reserve Bank if they still thought the cash ban was a good idea.

We didn’t get the answer we wanted, it seems the Reserve Bank is still trying to force people into the banking system and take away their right to decide what to do with their own money. Cash Ban Explanation – https://youtu.be/93EigYTWe5s

Then we asked about our bill coming up later next month to prevent banks using money deposited with them to pay their own expenses in a bank emergency.

What was obvious to Senator Roberts is that the Reserve Bank had no idea they had made a submission on our bail-in bill. The Reserve Bank was not on the list of submissions. Where did their submission come from? Could the Government have written it, not the Reserve Bank? The Reserve Bank is an independent regulator, it would be a scandal if the Government is writing their policy for them. One Nation will pursue this matter further.

Transcript

Senator ROBERTS: Thank you for attending today. I’ve seen reports that the Reserve Bank has printed an extra $12 billion in banknotes this year to keep up with demand. Do you have the accurate figure, please?

Dr Debelle: I do. I can provide you with an accurate figure. Yes, we have printed extra bank notes because there has been additional demand. Between 16 March and 6 August we printed 220 million banknotes worth $12.5 and they were issued into circulation. I don’t have the most up-to-date information to hand, but I can provide that.

Senator ROBERTS: If you could, that would be appreciated.

Dr Debelle: I don’t have it completely to hand. I may have it before we finish this line of questioning.

Senator ROBERTS: That’s impressive. The Reserve Bank’s written answer to my question on notice from the February estimates—it’s reference AET93—included this response—I’m slightly paraphrasing: ‘While cash is used less frequently in Australia, it is still widely held for precautionary purposes and some members of the community really very heavily on cash for their daily lives. Cash remains an important payment method for older households, those with disabilities and those living in rural and remote areas where electronic banking may not function reliably.’ Do you consider that people are voting with their feet and withdrawing cash to get ahead of the cash ban bill?

Dr Debelle: What we have seen is increased demand for banknotes, as you just highlighted in your previous question. I think that is mostly as a store of value. What we’ve seen is around 50s and 100s in particular; actually mostly 50s. I think it is primarily as a store of value, particularly in a world where interest rates are as low as they are.

Senator ROBERTS: So people have an alternative in cash. People need that alternative. Does the Reserve Bank support withdrawal of the widely criticised cash ban bill and instead support the development of a bill that actually addresses money laundering and tax compliance? In other words, is it time to kill the cash ban bill?

Dr Debelle: We’re part of the Black Economy Taskforce and we’re comfortable with the recommendations of that.

Senator ROBERTS: Item 1.27 of the Economics Legislation Committee’s report on the bail-in bill includes this statement:

The Reserve Bank of Australia … indicated the information provided by the Treasury to the committee’s inquiry was consistent with their views.

Is this correct?

Dr Debelle: I have no reason to suspect otherwise.

Senator ROBERTS: How did the RBA communicate with the committee? Because my office saw no submission.

Dr Debelle: I will have to take that on notice. I did not have direct involvement with this. Michelle, I don’t know if you can answer this?

Ms Bullock: I didn’t have. I know we had someone on the Black Economy Taskforce but I’m not aware of this particular bill.

Senator ROBERTS: Could you also send me the full comments that you made to the committee.

Dr Debelle: Sorry, the committee on the bail-in bill?

Senator ROBERTS: Yes, please. Your views to the committee include this statement: ‘The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 did not include a statutory power for APRA to write down or convert the interests of depositors as unsecured creditors of a failing ADI.’ Is this correct?

Dr Debelle: Yes. Michelle, I think you can confirm that.

Ms Bullock: Yes, our view is that it does not include those sort of provisions.

Senator ROBERTS: The G20 Financial Stability Board’s Key attributes of effective resolution regimes for financial institutions, adopted by Australia in October 2011, states: ‘Powers to carry out bail-in should enable authorities to convert into equity’—meaning shares of the bank in this case—’all or parts of unsecured creditor claims.’ And elsewhere it says that means deposits. We have a clear obligation, then, under this agreement, to provide a bank bail-in mechanism. If the 2018 act did not do that, where else is that provision?

Dr Debelle: We have depositor preference, as you may be aware, and a deposit guarantee—sorry, we have a deposit guarantee scheme, which guarantees bank deposits.

Senator ROBERTS: I understand the timing of that doesn’t quite back up what you’re saying. Let me look at that more closely. New Zealand responded to the Financial Stability Board’s instruction to pass bail-in laws with their open bank resolution system. The New Zealand Reserve Bank explains this is a follows: ‘If a bank fails, it is placed under statutory management and closed. If losses cannot be covered by shareholder funds, then a proportion of depositors’ funds are set aside and frozen for the purpose, then the bank reopens.’ That could not be clearer. New Zealand has a bail-in law. The UK and Canada have the same bail-in laws. I ask you again, if the crisis resolution act did not establish bail-in laws, where are ours?

Dr Debelle: As I just said, we have a depositor protection scheme in Australia. Michelle, do you want to add anything to that?

Ms Bullock: No, only that our understanding of the bail-in laws, and I think APRA’s understanding of the bail-in laws, is that they apply to certain hybrid instruments which may be bailed in, not depositors. Depositors have depositor preference and also the Financial Claims Scheme. My understanding, and I think it’s the common understanding, is that bail-in does not apply to deposits in Australia.

Senator ROBERTS: I put it to you that it is our obligation under the G20 agreement to conduct a bail-in if a bank fails, that the 2018 act was specifically written to allow a bank bail-in, and that the wording chosen in the 2018 act was deliberately obtuse to hide that fact.

Dr Debelle: I’d like to confirm that we have depositor protection. You can take this issue up with APRA when they come later on, but that’s the state of play in Australia.Senator ROBERTS: Thank you. I have some more questions to put on notice.

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Questioning Australian Prudential Regulation Authority (APRA) – Bail in Laws

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Bail-in measures are designed to inject capital into a bank that gets into trouble. The bank is authorised by the corporate regulator – APRA to take money out of the bank accounts of depositors and to use that money to pay their own bills. The depositor loses their money but does get shares in the bank, which will be worthless, but may come good years down the track if the bank doesn’t go broke.

APRA maintain that the emergency banking measures passed in 2018 by the Turnbull Government did not include a bail-in power. Further, if they used the general powers in that act to order a bail-in, that bail-in would be declared “invalid”.

This is because the Banking Act protects deposits. One Nation’s legal advice is that the emergency powers over-rule the general protections in the Banking Act and APRA do have bail-in powers. One Nation have proposed a bill to clear this up by adding one simple paragraph to the Banking Act that says APRA do not have the powers to order a bail-in.

APRA doesn’t want our bill passed because they know they do have bail-in powers and don’t want us to take them away. This round of questions did extract an admission that APRA does have bail-in powers, but not for deposits. So at least we are getting a little more honesty out of APRA on this matter. We also spoke about their emergency bank rescue plans.

One Nation feels these plans will show a bail-in is part of the plan. Getting our hands on those plans won’t be easy.

Transcript

Senator ROBERTS: Thank you all for participating tonight. APRA’s submission 197 to the inquiry into our bank anti bail-in bill—and I am slightly paraphrasing—says that APRA does not have the power to direct Australian authorised deposit-taking institutions to bail in a deposit because that would be inconsistent with the objects of the Banking Act, particularly the paramount objective of protecting depositors, and that such a direction would be found to be invalid. Who would find it invalid?

Mr Byres: It could be challenged by anyone who wished to take it before the courts—that would be the answer. Our direction could be appealed to a court.

Senator ROBERTS: That is my understanding, too—that only a court can find an APRA direction invalid. Can I confirm that it is your position that if a bail-in occurs those depositors who have lost some or all of their money must then take their banks to court at their own expense, with millions of dollars in legal expenses, to seek an order declaring the bail-in invalid? They will have very little in the way of funds to fund that because their deposits have been cleaned out.

Mr Byres: Your question is premised on the assumption that there is a bail-in. I think in our correspondence with the committee and in our submission to the committee on this bill we made very clear that our whole purpose is to protect depositors, not to bail them in. A bail in of depositors would be anathema to the way we operate and our statutory purpose. So I think it is a scenario that is entirely hypothetical, because that would not be a direction that we would give.

Senator ROBERTS: The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 says APRA has a right to enact emergency powers and they are often said to be overruling. Does that emergency directions power have primacy over the general banking directions in section 2A in the Banking Act?

Mr Byres: I’m not sure where exactly you are referring to, but you are right: we have strong powers to deal with an emergency situation where a bank or another financial institution is in severe financial stress. The purpose of that in the case of a bank, to be clear, is to protect the community and depositors.

Senator ROBERTS: The IMF disagrees with APRA on the strength of the section 2A protections. The IMF has stated that:

The new ‘catch-all’ directions powers in the 2018 Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill provide APRA with the flexibility to make directions to the ADIs that are not contemplated by the other kinds of general directions listed in the Banking Act.

If the IMF are correct, you do have bail-in powers. Is the IMF wrong?

Mr Byres: The bail-in powers that we have relate to capital instruments. Again as we put in our submission to this committee when it conducted its inquiry into that bill, the objective is very clearly to have bail-in for subordinate capital instruments. That act and, in particular, the sections of that act which attracted a lot of attention were designed to make sure that there was legal certainty and that the contractual arrangements that are in those subordinated debt and hybrid instruments would work in this.

Senator ROBERTS: Our bill simply clarifies that you do not have bail-in powers, which is what you’re  telling me here today. Why are you opposing our bill when it does nothing more than clear up what the law is saying that you say it is?

Mr Byres: Sorry, Senator. We do have bail-in powers. They relate to certain specific instruments. As the law currently applies to banks, it applies to their subordinated debt or, in the jargon of the bank supervisor, tier 2 capital, and it applies to hybrid capital instruments or additional tier 1 capital. So we do have bail-in power. It was designed to give legal certainty to the bail-in of those instruments if needed. It does not apply to deposits.

Senator ROBERTS: Our bill simply clarifies that it doesn’t apply to deposits, so why would you oppose it? It doesn’t stop the bail-in of other funds, appropriately, but it would stop the bail-in of deposit funds: cheque accounts, savings accounts, small business accounts, private accounts. That’s all it does, so it’s agreeing with you. Why would you oppose it?

Mr Byres: The view we put in the submissions was that it was not necessary because we thought the current law was adequate.

Senator ROBERTS: It doesn’t change anything for you; it complies with what you just stated. I can’t understand why you’d oppose it. It makes two minor changes that are in line with what you’re saying.

Mr Byres: As we said in our submissions, we didn’t think it was necessary.

Senator ROBERTS: Okay. APRA’s 2018 paper titled ‘Increasing the loss-absorbing capacity of authorised deposit-taking institutions to support orderly resolution’ states:

APRA will need to work with ADIs on an ongoing basis to ensure adequate resolution plans are developed and maintained. These plans—

supposedly—

outline how APRA would use its powers to manage the orderly failure of ADIs and identify steps that can be taken to remove barriers to achieving effective resolution outcomes.

Have those plans been drawn up? If so, what are they?

Mr Byres: I’ll start, and then I’ll see if my colleague Mr Lonsdale wants to jump in. One of the things we have to do is prepare for the unexpected. We can never provide a guarantee that a bank—or, for that matter, an insurer or another type of financial institution—won’t get into financial difficulty. We need to have crisis plans, like contingency plans, drawn up for how we would respond in the unlikely—and I stress ‘unlikely’—scenario that a bank was close to failing or was failing. The sorts of plans that we have—we’ve just stepped through what actions we might be able to take and how we would achieve an orderly outcome, but, as I’ve said many times already in my answers to your questions, this is with a view to protecting depositors.

Senator ROBERTS: Just to interrupt there: you said the plans would be drawn up. Have they been drawn up is what I asked?

Mr Byres: We have plans drawn up, yes, but they could always be improved. The institutions themselves are constantly evolving and changing, so the plans always need to be updated to make sure they continue to be current.

Mr Lonsdale: I would just add that this has been a big priority for us this year. In fact, the government has provided APRA with some funding in the budget. A significant portion of it focused on recovery and resolution development, so, as Mr Byres said, there’s a lot of work in continually keeping the plans updated and making sure they’re operationally fit for purpose.

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