Banking and Financial Reform Group Reform Proposals.
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Items considered 1. Separation of investment banking from retail (narrow) banking 2. National public bank 3. State banking 4. Government low interest loans for infrastructure 5. Ethical banking and accountability 6. Banking competition 7. Entrepreneurial bank 8. Financial speculation and bank solvency 9. Monetary reform10. Property debt11. A modern debt Jubilee
Separation of investment banking from retail (narrow) banking
Adequately regulating the financial sector to ensure full demarcation of merchant and investment banking from retail banking.
More generally, the megabanks (“too big to be allowed to fail”) need to be broken up, in terms of their complexity and size.
The current giant investment banks were originally not banks at all -- they were organisations which handled securities. Relaxed regulatory arrangements allowed them to move into retail banking and to exploit the privilege of being able to create credit money to their commercial advantage.
National public bank
Creating a national Australian public bank, along the lines of the original Commonwealth Bank, to compete with the other commercial banks in providing retail banking facilities for the public and business.
This bank to also provide funding for selected socially and environmentally friendly ventures not regarded as sufficiently profitable for the private commercial banks.
Empowerment of local and state governments to divert their funds from the largest private banks to alternative banking institutions large enough to take the deposits.
An obvious solution is for states to:
re-establish their own public banks
capitalised with their rainy day funds, funded with their own revenues as a deposit base
to be used for supporting the needs of local businesses and industries
Establishment of ethical standards, as well
as social and environmental accountability,
for all banking and investment practices.
Ethics is not just about detecting, revealing
and prosecuting fraud and corruption, it's
about choosing and implementing an ethical
approach, supported by adequate regulation.
Having ethically organised banking institutions in
competition with other institutions will encourage
ethical standards and practices across the sector –
e.g. the Triodos Bank in the Holland only lends for
ethically viable projects.
The LIBOR banking scandal: “This dwarfs by orders of magnitude any financial scam in the history of markets”Andrew Lo, Professor of Finance, MIT
Enhancing banking competition by strengthening incentives for establishing and developing cooperative banking institutions, including community banks, credit unions and building societies.
Creation of a special category of banking institution - an entrepreneurial (innovation) bank - able to provide finance for bridging the gap between
(a) research and development
(b) project capitalisation
in order to make the items developed market ready.
Financial speculation and bank solvency
Developing strategies for controlling the tendency of commercial banks to create too much debt, which leads ultimately to asset bubbles, market crashes, and a perceived need to bail-out insolvent banks.
In particular, leveraged speculation on the prices of pre-existing assets needs to be much less than it has been in recent times. Items 9 and 10 provide some mechanisms which would contribute to effecting such a reduction.
Devising and operating a financial system in
which all money used by the public is created
by the Reserve Bank of Australia, rather than
the current system where most of our money
supply is bank credit money created by retail
Several models for ensuring that all money in use will
exist exclusively as a form of state fiat money have
been worked out. The first such model was the 1930s
Chicago plan, which had the support of some of the
most distinguished economists of that era. Positive
benefits include a reduction in leveraged speculation,
an end to the necessity to have reserves operating in
parallel with deposits, and a possible end to banks’
time (term) deposits. A suitable alternative to time
deposits would be government infrastructure bonds.
A modern debt Jubilee
Implementing a program of debt forgiveness (a debt Jubilee), as an alternative to 10-15 years of slow repayments and bankruptcies.
The process to involve directing newly created money to bank accounts of the public, and requiring that the first use of this money must be to pay off existing debt.
The debt jubilee may be funded in the same way that
quantitative easing for the financial sector has been
funded - by central bank money creation, and for the
same reason – to compensate those holding assets
whose real value has fallen (e.g. in the case of the
public, property prices), owing to a collapsing asset
bubble. This would counter deflationary pressures.
New loans from the financial sector would be directed
at purchasing other more stable types of assets.