Frontline Blog for stuff.co.nz
13th July 2009

Six of Australia's most influential economists last week called on their government to follow New Zealand's example and establish a government-owned bank.

They saw Kiwibank as a model desperately needed in Australia because of frustration with the domination of Australian banking by their big four commercial banks - much the same beasts that dominate New Zealand banking.

The Australian economists make the same criticism of the banks that New Zealanders do: they act more as a cartel than as competitors, have not passed on decreases in interest rates to customers and are more focused on profits than service.

In the recession they have squeezed out other local banks in Australia and increased their share of the mortgage market from 80 per cent to 92 percent.

Prime Minister Kevin Rudd has dismissed the idea and says Australia should be proud the big four Aussie banks are among the 11 largest international banks. This is no help to Australian consumers. Where the banks are owned is immaterial - whether the profit goes to a wealthy Australian or a wealthy American makes no difference. It's the community's ability to control and regulate banks for the benefit of customers which is important.

One of the six economists, Professor Joshua Gans from the Melbourne Business School said Australia used to have a people's bank in the Commonwealth Bank, and that the country should now have a Government-provided backstop with affordable accounts and affordable home loans.

I'm no banking expert but as I understand it Australia's Commonwealth Bank was not simply a government-owned player in the market as is Kiwibank but was more like our Post Office Savings Bank, which among other things provided relatively low-interest home loans to New Zealanders.

On average, every year, every person in New Zealand loses hundreds of dollars to pure profit in our foreign-owned banks whereas once this money would have flowed back to account holders.

The highest profile trustee bank we still have is the TSB (Taranaki Savings Bank), which always scores at the top in customer satisfaction surveys. This is no surprise because trustee banks have their focus on providing services to customers rather than profits for shareholders.

In a true marketplace changing banks would be easy but for most of us changing accounts to Kiwibank or TSB is difficult and time-consuming as we untangle various financial arrangements. The big banks exploit this time-driven customer inertia. No excuse for our government though. The government itself banks with Westpac and would prefer the profit from its accounts to go to wealthy overseas shareholders rather than to benefit all New Zealanders through a community owned bank.

Our Government has also put the brakes on allowing the Finance and Expenditure Select Committee to conduct an investigation into the Australian banking cartel which our Reserve Bank and non-banking economists blame for milking us during a recession. Even New Zealand businesses have called for action but to no avail.

An activist, interventionist, New Zealand government is sorely needed but the banks have the politicians how they want them - gutless with self-imposed impotence.