An Economic History of Prudential Bank Regulation in a
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SAFETY AND SOUNDNESS: AN ECONOMIC HISTORY OF PRUDENTIAL BANK REGULATION IN A - A thesis submittedUSTRALIA, 1893 2008 in fulfilment of the requirements for the degree of Doctor of Philosophy Christopher Richards Berg B.A. (Hons) (University of Melbourne) School of Economics Finance and Marketing College of Business RMIT University September 2016 DECLARATION I certify that except where due acknowledgement has been made, the work is that of the author alone; the work has not been submitted previously, in whole or in part, to qualify for any other academic award; the content of the thesis is the result of work which has been carried out since the official commencement date of the approved research program; any editorial work, paid or unpaid, carried out by a third party is acknowledged; and, ethics procedures and guidelines have been followed. Christopher Richards Berg, September 2016 ii ACKNOWLEDGMENTS This thesis would not have been possible – or even probable – without the support of a number of people. A heavy burden has been laid on Professor Sinclair Davidson, my primary supervisor, who has been a constant source of academic and personal advice, intellectual challenge and reflection on this thesis and innumerable other topics through the course of my studies. My secondary supervisor Jason Potts has also been a source of much insight and questioning as the framework for the study took shape. Many people have provided constructive and invaluable feedback. Richard Allsop’s happiness to read every manuscript I have placed in front of him is apparently limitless. Darcy Allen, with whom I developed the subjective political economy framework outlined in this thesis, has been an incomparable source of ideas and discussion. My fellow PhD students throughout this process – Aaron Lane, Trent MacDonald and Pete Gregory – have also been great sources of support. Also worth thanking are the anonymous reviewers on the two papers published in this thesis, whose advice has made those chapters significantly better. I would also like to thank the Institute of Public Affairs (IPA), and particularly its executive director John Roskam, for the support granted for this project. First of note is the generous industry scholarship provided by the IPA, without which this project would not have gotten off the ground, and is a testament to the IPA’s work developing the next generation of free market intellectuals. Second is the support I have had while working for the IPA to complete the thesis, and the opportunities to travel to visit archives around Australia, to visit conferences, and to develop my thinking in a wide liberal framework. My economic and political philosophy has been shaped by the work I have done at the IPA. The research has also been made immeasurably easier by the Australian Postgraduate Award granted by iii RMIT University. Other thanks must go to the extremely helpful staff at the Reserve Bank of Australia archives in Sydney and the National Australian Archives in Canberra. Finally, and most importantly, my family. Bronwyn Hinz – now Dr Bronwyn Hinz – wrote her own PhD at the same time I produced this one, at the same time as being a wonderful mother to two young boys, Leonard and Walter. Her patience, understanding, sympathy, and forbearance are the only reason these words have been written. It is to her and our children that this thesis is dedicated. How could it be otherwise? iv PUBLICATIONS The following articles have been published from this thesis: • Parts of Chapter 3 and Chapter 4 have been published as Berg, C 2015, 'The Curtin–Chifley Origins of the Australian Bank Deposit Guarantee', Agenda, vol. 22, no. 1, pp. 21-43. • Parts of Chapter 5 and 6 have been published as Berg, C 2016, 'The Campbell committee and the origins of ‘deregulation’ in Australia', Australian Journal of Political Science, viewed 29 August 2016, <http://dx.doi.org/10.1080/10361146.2016.1219315>. • Parts of Chapter 2 are available as a working paper, co-authored by and jointly developed with Darcy Allen as Allen, DWE and Berg, C 2016, 'Subjective Political Economy' SSRN, June 21 <http://ssrn.com/abstract=2799032>. The following publications are referenced but not submitted for examination: • Berg, C 2008, The Growth of Australia's Regulatory State: Ideology, Accountability and the Mega-Regulators, Institute of Public Affairs, Melbourne, Australia. • Berg, C 2015, 'Classical Liberalism in Australian Economics', Econ Journal Watch, vol. 12, no. 2, pp. 192-220. • Berg, C 2015, Liberty, Equality & Democracy, Connor Court Publishing, Ballan, Victoria. • Berg, C and Davidson, S 2015, 'Media Regulation: A Critique of Finkelstein and Tiffen', SSRN, viewed 19 July 2016, < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2669271>. v TABLE OF CONTENTS Declaration ..................................................................................................................................................... i Acknowledgments ........................................................................................................................................ iii Publications ................................................................................................................................................... v Table of contents ......................................................................................................................................... vi Abstract ......................................................................................................................................................... 1 Acronyms ...................................................................................................................................................... 4 1 Introduction ............................................................................................................................................... 9 1.1 Introduction ........................................................................................................................................ 9 1.2 Rationale ........................................................................................................................................... 11 1.3 Research aims and objectives ........................................................................................................... 16 1.4 Method and sources ......................................................................................................................... 17 1.5 Plan of the thesis ............................................................................................................................... 26 1.6 Thesis boundaries ............................................................................................................................. 28 2 Why are banks regulated? A subjective political economy approach ..................................................... 31 2.1 Introduction ...................................................................................................................................... 31 2.2 The Institutional Possibility Frontier ................................................................................................. 32 2.3 Using models to explain regulatory choice ....................................................................................... 37 2.4 Public interest models ...................................................................................................................... 38 2.5 Private interest and the field of public choice .................................................................................. 44 2.6 The economic function of ideas ........................................................................................................ 53 2.7 Subjective political economy ............................................................................................................ 57 2.7 Conclusion ......................................................................................................................................... 64 vi 3 Two Depressions and the Money Power: the crash of 1893 to the 1937 Royal Commission on Monetary and Banking Systems .................................................................................................................................. 66 3.1 Introduction ...................................................................................................................................... 66 3.2 The financial terror of 1893 .............................................................................................................. 68 3.3 Ideology and banking after the 1890s: the Money Power ............................................................... 74 3.4 Bank failures during the Great Depression ....................................................................................... 76 3.5 The 1937 Royal Commission ............................................................................................................. 80 3.6 Towards financial repression ............................................................................................................ 87 3.7 Conclusion ......................................................................................................................................... 93 4 The Curtin-Chifley origins of the Australian bank deposit guarantee ..................................................... 98 4.1 Introduction .....................................................................................................................................