THE growing power of the Big Four banks has been targeted by a coalition of six influential economists, who have petitioned the Prime Minister and the Treasurer to set up an inquiry into Australia's financial system.
They have suggested the Government set up a "basic bank" so Australians can deposit money with Australia Post and have it managed by the Future Fund.
The so-called people's bank would be similar to New Zealand's successful Kiwibank, which was set up to break the dominance of the Australian-owned majors.
Since the financial crisis began the Big Four have increased their share of the mortgage market from 80 per cent to 92 per cent and taken over non-bank lenders such as RAMS and second-order banks including St George and BankWest.
The open letter (see separate story) expresses concern at how the banks are using their privileged access to government guarantees, saying they are "rushing offshore" to expand even though Australians are "repeatedly told that our banks were lucky not to have had substantial overseas exposures".
The banks have been under fire for failing to pass on to mortgage holders the full cuts made by the Reserve Bank. Yesterday the Reserve left its official cash rate unchanged at 3 per cent.
The open letter is signed by economists who have advised both sides of politics, including Christopher Joye, chairman of the former prime minister John Howard's 2003 Home Ownership Task Force, and Nicholas Gruen, chairman of the Government 2.0 Task Force for the Finance Minister, Lindsay Tanner.
The letter was delivered to the office of the Treasurer, Wayne Swan, late yesterday, and gained support from the ACTU president, Sharan Burrow, and the shadow treasurer, Joe Hockey.
But a spokesman for Mr Swan appeared to reject it, saying Australia's financial system had performed "very well" during the crisis compared with others and the Government was "not contemplating" a systemic review.
Dr Joye, who runs the research and investment firm Rismark, said Mr Swan's response was an example of the complacency the open letter warned against.
"Everybody knows that providence has played a part in Australia's ability to skate through this crisis. When a coalition of top academic economists calls for a review to evaluate improvements to Australia's decades-old regulatory system, politicians should listen," he said.
The letter says Australia would "do well not to discount the possibility that a roll of the dice left us without more significant system failures" and adds that "in future, we may not be so lucky".
It was also signed by Joshua Gans, a professor at Melbourne Business School, Stephen King, a Monash University professor and former ACCC commissioner, John Quiggin, a professor at Queensland University, and Sam Wylie, a management consultant.
The letter refers to two inquiries into Australia's financial system - the Wallis inquiry of 1997 and the Campbell inquiry of 1981 - and says much of what they brought in is now out of date. It says a new inquiry would examine whether the banks should pay a "systemic capital charge" to account for risks in their business and whether they should have to accumulate capital in good times.
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