Submission Covering Letter Zoe Elizabeth Cotterill-Rogers, 10 July, 2020 Senate Standing Committees on Economics (The Senate Economics Legislation Committee) PO Box 6100 Parliament House CANBERRA ACT 2600 [email protected] .au 1 Submission Zoe Cotterill-Rogers 10 July 2020 The Senate Economics Legislation Committee PO Box 6100 Parliament House CANBERRA ACT 2600 [email protected] Dear Committee Secretary and Senators, Inquiry into the Banking Amendment (Deposits) Bill 2020 On the 18th June, 2020 the Senate referred to the Economics Legislation Committee, for inquiry and report by 10 August 2020, the Banking Amendment (Deposits) Bill 2020 (“the Bill”). The Bill, introduced by One Nation Senator Malcolm Roberts on the 27th February, 2020, is for an Act to amend the Banking Act 1959 and for related purposes. The Inquiry website: https://www.aph.gov.au/Parliamentary Business/Committees/Senate/Economics/BankingDe posits I am a retiree and wholeheartedly endorse the Bill. The concerns that have led me to make this submission encompass, in particular, the potential impact the conduct of the banks, operating in the existing legislative framework and economic climate, could have on Australia’s economy and ultimately on the welfare of my family and the majority of Australians, that is, without parliamentary endorsement of the Bill. My reasons follow: 1. The deficiency of current legislation. 1.1. The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018, No. 10, 2018 (“the Crisis Management Act”) amended the Banking Act, 1959 and the law in relation to the financial sector. https://www.legislation.gov.au/Details/C2018A00010 https://www.legislation.gov.au/Details/C2020C00089 2 1.2. The consequence of enacting this legislation was to give the bank regulator APRA (the Australian Prudential Regulation Authority), who, though, appear to have been ineffective in their role to date, powers to “resolve” a banking crisis by enforcing a capital conversion or “bail-in” of certain creditors for the purpose of keeping failing banks buoyant. 1.3. Whatever the government says they will or won’t do in the event of a banking crisis pursuant to this legislation, these creditors are not clearly defined in the legislation: for both clarity and transparency they should be. 1.4. Elaborating: In the Definitions at 11CAA in Subdivision B – Conversation and write-off provisions of the Banking Act, 1959 (“the Act”), reproduced below, you will see appear the words “(b) or any other instrument”: “Subdivision B—Conversion and write-off provisions 11CAA Definitions In this Subdivision: clearing and settlement facility has the meaning given by Division 6 of Part 7.1 of the Corporations Act 2001. conversion and write-off provisions means the provisions of the prudential standards that relate to the conversion or writing off of: (a) Additional Tier 1 and Tier 2 capital; or (b) any other instrument.” 1.5. Consequently, when read with the remainder of the Act, it is unclear whether or not a financial instrument under the Act extends to bank deposits, so as to be included in any ‘bail-in’ that occurs in the event of a bank’s failure. Potentially, requiring investors and customers to pay with their savings for the gambling, irresponsible and uncontrolled practices of the bank causing the crisis, while the bank gets to carry on those same practices, harming our economy and people’s lives, many of whom have worked hard to accumulate their savings. 1.6. A verbal claim, or even confirmation in written correspondence, by the current government that deposits won’t be bailed in is insufficient and non-binding (ie, open to revision as a consequence of any change of mind or government) and, consequently, meaningless without legislative force. 1.7. Uncertainty has the propensity to undermine the publics’ confidence in banks, whose status and importance is evidenced by the governments’ willingness to prop them up and legislate to this effect. 1.8. Whatever the risk be of banks failing, if the government is genuine in saying it won’t bail in deposits, there is no reason for it not to support the Bill. 3 1.9. Common sense also dictates the need to ensure a banking structure and banking practices that don’t have the potential to lead to failure of the financial system in the first place requiring a bail-in of creditors, which our current system facilitates, as defined in more detail below. 1.10. It is most illogical to ignore and not restrain the speculative and risky banking practices currently permitted while merely legislating to manage a banking crisis, evidently anticipated as a consequence of those practices, by the enactment of the Crisis Management Act. This could of course more comprehensibly be accomplished by a structural separation of banks as effectively existed until the 1980’s, protecting deposits from the dangers of speculation and making more credit available for lending to enterprises that make a more productive Australia, rather than one built on inflation disguised as quantitative easing. By a separation of deposits from speculation, banks are not permitted to do anything that puts their deposits at risk, thereby, protecting both bank deposits and the economy. 1.11. Separating completely investment banking from commercial banking promotes good banking practices that bailing banks in or out doesn’t. 1.12. The Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry highlighted the necessity for banks to be limited to their core industry. The vertical integration of the banks providing additional services including financial advice, insurance and superannuation have been shown to be the root cause of rorts, overcharging and profit gouging. https://www.openaustralia.org.au/senate/?id=2019-02-12.119.1 1.13. The idea of a structural separation of the banks is not new and has been endorsed by the likes of: Don Argus, former CEO of National Australia Bank and former Chairman of BHP; John Dahlsen, former ANZ director and former chairman of Woolworths, Herald and Weekly Times, and Southern Cross Broadcasting; Professor Alan Fels, former ACCC chairman; Former APRA Principal Researcher and ASIC Researcher Dr Wilson Sy recommended in his submission to the Royal Commission: https://www.openaustralia.org.au/senate/?id=2019-02-12.119.1 https://treasury.gov.au/sites/default/files/2019-03/CEC Proposal Glass- Steagall July 2017.pdf 1.14. There have been so many advocating for structural separation of the banks that financial commentator Alan Kohler reported in The Australian on 3 December 2018: “I have been opening a random sample of the 10,140 submissions—just short ones from individuals. Without exception they called for the banks to be broken up and most of them, surprisingly, used the term ‘Glass-Steagall’— suggesting that the now-repealed American law that used to forcibly separate banking from insurance and investment banking be introduced into Australia.” https://www.bankvictims.com.au/index.php/forum/welcome-mat/2784-alan-kohler- reviews-submissions-glass-steagall 4 1.15. Besides my concern that there was a need to introduce legislation that foreshadows a failure of banks, while appearing to do little or nothing in the interim, as described above, to prevent it occurring, the lack of specificity in the legislation is easily remedied by the Bill introduced on the 27 February, 2020 by Senator Roberts. Providing Australians with some peace of mind, at least, in regard to their deposits and savings, while affording some incentive to the banks to protect them. 2. Legislative instrument (the Bill) is Australians only guarantee that bank deposits won’t and can’t be bailed-in. 2.1. It is stated in the Explanatory Memoranda to the Bill:- - “This bill will avoid doubt as to the meaning and intent of various provisions in the Banking Act 1959 in relation to bail-in…. to confirm that the conversion and write- off provisions of the Banking Act 1959 do not apply to deposit accounts as defined in the bill; and to confirm that nothing in the Banking Act 1959 or any other Commonwealth legislation extends power to APRA to implement or authorise or direct the implementation of bail-in in respect of deposit accounts as defined in the bill… - Since the passing of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 there have been doubts as to the meaning and intent of various provisions in the Act as to the extension by the Act of power to APRA to implement, authorise or direct bail-in to deposit accounts where the instruments relating to the creation of such accounts did not provide for a power of bail-in being the writing off or conversion of deposit accounts. - This bill will remove those doubts by confirming that the conversion and write-off provisions introduced into the Banking Act 1959 by the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 do not apply to deposit accounts. - The bill will further remove doubt by confirming that nothing in the Banking Act 1959 or any other Commonwealth legislation extends power to APRA to implement or authorise or direct the implementation of bail-in in respect of deposit accounts. - Deposit accounts are defined in the bill and include those accounts commonly understood as current or cheque accounts conducted by customers with Australia’s banks…. - The bill will: Remove doubts as to the meaning and intent of various provisions in the Banking Act 1959 as to APRA’s power to implement, authorise or direct bail- in to deposit accounts where the instruments relating to the creation of such accounts did not provide for a power of bail-in being the writing off or conversion of deposit accounts, by confirming that the conversion and write-off provisions introduced into the Banking Act 1959 by the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other measures) Act 2018 do not apply to deposit accounts.