Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
The Senate committee inquiring into the bill giving bank regulator APRA sweeping crisis resolution powers has issued a report that, in its haste to hose down objections to the bill, includes glaring contradictions.
The Senate Economics Legislation Committee’s report on the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 was released on 9 February. The report is a rubber stamp, reflecting the government’s biased view of its own bill and not the conclusions of a genuine inquiry, which wasn’t possible, as the committee had refused to hold hearings on the objections raised in the more than 1,000 public submissions to the inquiry. The report does not even acknowledge the enormous number of submissions, referring only to a “large amount of correspondence … in part prompted by an email campaign organised by the Citizens Electoral Council”. Given that the average number of submissions to a Senate Economics Committee inquiry is 30, this refusal to acknowledge the true scale of the public’s opposition, and the committee’s decision to publish only 46 of the submissions, listed in the report, amounts to shameless censorship of the public’s views.
The objections to the bill nevertheless dominate the report, as most of it is devoted to responding to the submissions of the Citizens Electoral Council, former APRA principal researcher Dr Wilson Sy, and some other groups. The report sought to deny that the bill in any way placed the bank deposits of everyday Australians at risk of being able to be confiscated, i.e. “bailed in”, by APRA in a banking crisis. This required the addition of an entire extra chapter, which expanded what otherwise would have been an 11-page report out to 32 pages.
The most bizarre contradiction in the report is stated in the summary at the end headed “Committee view”. The committee was forced to respond to the calls by the CEC and the majority of the 1,000-plus submissions for a Glass-Steagall separation of banks with deposits from all other financial services, as the only way to achieve true financial stability and protect depositors. Rejecting the calls for Glass-Steagall, the report states in paragraph 2.55: “The committee notes that recent reforms have contributed to a financial system that is unquestionably strong and, as a result, does not consider that Glass-Steagall legislation is warranted in Australia.” (Emphasis added.)
Here’s the question that didn’t seem to occur to the committee, but the CEC will ask it: if Australia’s financial system is indeed “unquestionably strong”, why on earth is the government legislating powers to resolve a financial crisis?
That Canberra MPs could describe the financial system in this way illustrates why Australia’s banks have been allowed to commit horrific abuses, and why the nation is heading into a massive financial crisis. This statement is precisely the sort of hubris that Washington and London politicians spouted before their banks blew up the world in 2007-08. The fact is that Australia’s financial system is a basket case, concentrated in four too-big-to-fail banks—the highest level of concentration in the world—which all have the majority of their assets in the massive housing bubble that is now under threat from rising global interest rates, and which London analyst Absolute Strategy Research has just labelled a global systemic threat.
Another contradiction is the committee’s blind faith in the Treasury’s and APRA’s reassurance that the bill will not lead to the bail-in of deposits. Under 2.56 of Committee view, the report concludes: “The committee believes that the protection of depositors’ interests is paramount and does not consider that the bill would allow the ‘bail-in’ of Australians’ savings and deposits.” However, earlier in the report the committee makes a big issue of the fact that the bill conforms to the Swiss-based Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions, issued in 2011: “These Key Attributes set out the ‘core elements that the FSB considers to be necessary for an effective resolution regime’. … The legislation proposed in the bill draws on these criteria in forming its plan for financial crisis resolution and resolution planning.”
Yet the FSB’s “Key Attributes” include powers to bail in deposits! Under “Resolution powers”, 3.5 of the Key Attributes defines “Bail-in within resolution”:
“Powers to carry out bail-in within resolution should enable resolution authorities to: (i) write down in a manner that respects the hierarchy of claims in liquidation (see Key Attribute 5.1) equity or other instruments of ownership of the firm, unsecured and uninsured creditor claims to the extent necessary to absorb the losses…” (emphasis added). This includes depositors, which in a bank are “unsecured creditors”! (Note: “uninsured” refers to deposits not covered by a guarantee. In the case of Australia’s $250,000 Financial Claims Scheme, both the CEC and former APRA principal researcher Dr Wilson Sy have exposed it as worthless, because a) it must first be activated, and b) APRA and the FSB have admitted it doesn’t have sufficient funds to cover deposits in any of the Big Four banks, which hold 80 per cent of all deposits.)
In addressing the bail-in of the hybrid securities—the high-interest bank bonds containing triggers by which they can be written off or converted to worthless shares if the bank starts to fail, which APRA allowed the banks to sell to hundreds of thousands of unsuspecting self-funded retirees and self-managed super funds—the report does not deny they will be bailed in, but makes the following ominous admission in paragraph 2.53: “The bill only proposes to ensure that the conversion and write-off of capital instruments cannot be legally inhibited.” (Emphasis added.)
This report of the government-dominated committee reflects Treasury’s and APRA’s determination that this bill must pass, to align Australia with the FSB’s global bank bail-in resolution regime. It is notable that they have been forced to respond to the objections of the CEC, other experts and more than 1,000 Australians, but their reassurances are hollow and contradictory. The CEC is continuing the fight to stop this bill and achieve in its place financial regulations that protect the public from banks, beginning with Glass-Steagall.
What you can do
Click here for a free copy of the latest issue of the CEC’s Australian Alert Service magazine, which reports on the warnings and indicators of a new financial crisis, and the CEC’s fight to implement the Glass-Steagall solution.
Click here to join the CEC as a member.
Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.