Does the banker still hold all the cards?

David Stephens

‘Does the banker still hold all the cards?’ Honest History, 24 November 2014

In the 1950s the then Bank of New South Wales, now Westpac, produced pamphlets on historical subjects for primary school children. On the back of one pamphlet was a sketch of a grassy patch of Olde England, with the text, ‘I know a bank …’, followed by some words about looking after one’s pennies so they could grow into pounds. The line was from a speech by Oberon in A Midsummer Night’s Dream – ‘I know a bank whereon the wild thyme blows’ – and the effect was benign and comfortable, like the emotion induced by the Commonwealth Bank money-boxes in the shape of famous bank buildings or the weekly line-up to put coins into one’s school bank account, in my case with the State Savings Bank of Victoria.

Banks then appeared solid and changeless, with a friendly and community-oriented façade, unless one wished to borrow from them, when they became firm but polite. Banks today seem different. The Australia Institute in its e-bulletin dated 14 November collated some evidence reminding us of this. First, there are fewer banks. The State Savings Bank has long since gone down the gurgler (being taken over by the Commonwealth) as have other venerable institutions. (There is material from The Australia Institute on competition in banking and on banking generally.)

Now, according to the International Monetary Fund in 2012, Australia’s banking system is the most concentrated in the world. Our ‘big four’ banks, ANZ, the Commonwealth, the National Australia Bank and Westpac, have a bigger share of banking business here than the biggest four banks in any other economy. And three out of four of them announced record profits in 2014, with underlying pre-tax profit in the year 2013-14 for the four amounting to $A44 billion. ‘Big, safe and friendly’, the Commonwealth’s slogan of the 1970s, would only partially work today. The smiling elephant that went with that slogan has been replaced by the anonymous ‘burnt toast’ corporate logo.

Queensland National Bank, Thornborough, ca. 1888. The branch opened 9 January 1877 and closed 31 October 1891 (John Oxley Library, State Library of Queensland)

Secondly, the Institute notes that these four banks are ‘too big to fail’. If they go down the economy – and us – go with them. Total liabilities (mainly deposits) of the big four were more than $A1.5 trillion in September this year, which was roughly the same size as Australia’s GDP.

In other words [says the Institute], just four banks out of 70 hold almost 80 per cent of the total debt of the banking system … The idea of the Government having to protect the depositors in any of these banks in the event of failure is mind boggling.

The relationship between governments, banks and customers has been a continuous theme in Australian history. When the Fisher Government founded the Commonwealth Bank in 1910 it disappointed the radical Labor member, Frank Anstey, who said the new bank ‘possesses no more power than any ordinary trading bank’.

Thus [Anstey said] the Labor Government ignored the felonious bank history of all countries – “one of the frauds by which Capitalism bleeds the people”… It gave a Commonwealth Bank, but it left it stripped of those prerogatives specified in the platform; prerogatives that would have made it the supreme banking power in the Nation, that would have made all other banks (while they existed) subject to its will. (The Money Power, 1921, p. 73)

The Great Depression led to demands for banking reform, following what was seen as the banks’ contribution to the crisis – essentially, excessive lending during the 1920s followed by restrictive policies after the crash of 1929 – which harmed many ordinary Australians. In 1937, the then former Labor member of federal parliament, Ben Chifley, used his minority report in the Royal Commission on the Monetary and Banking Systems to propose fundamental change.

Chifley in the 1930s (Wikimedia Commons/National Library of Australia)

Chifley’s fresh memories of the then recent depression added to his recollections of the impact of the 1890s depression, when thirteen banks closed in two months in 1893.

Banking differs from any other form of business [Chifley said] because any action – good or bad – by a banking system affects almost every phase of national life. A banking policy should have one aim – service for the general good of the community. The making of profit is not necessary to such a policy. In my opinion the best service to the community can be given only by a banking system from which the profit motive is absent, and, thus, in practice only by a system entirely under national control. (1; scroll down for endnotes)

The Royal Commission’s majority proposed far less sweeping reforms but even these were not followed up, due to opposition from the banks and then the onset of war. After World War II, the Curtin and Chifley Governments turned their attention to banking reform, largely in response to memories of earlier depressions and fears that a new one would occur. During the war, banking had been controlled under defence regulations. Labor’s 1945 banking legislation attempted to permanently regulate the trading banks through licensing, lodging of a part of bank deposits with the Commonwealth Bank and control by the Commonwealth of advances policy and interest rates.

The legislation also expanded the Commonwealth’s role into that of a central bank, though it was to be subject to the government in any policy dispute. These reforms were along the lines of the wartime system and the recommendations of the 1930s Royal Commission.

When the High Court knocked out the 1945 legislation (2), Chifley responded on 16 August 1947.

Cabinet today authorized the Attorney-General (Dr. Evatt) and myself to prepare legislation for submission to the Federal Parliamentary Labor Party for the Nationalisation of banking, other than State banks, with proper protection for shareholders, depositors, borrowers and staff of private banks.(3)

What followed over the next two years has been described as the most torrid political battle in Australia since the conscription referenda of 1916-17. Chifley put the case for nationalisation.

We have only to cast our minds back to other days, when tens of thousands of people were deprived of the necessities of life. Even as a small child, I can remember the depression of the nineties, and the farmers near where I lived who were desolated and grief stricken at the closing of the banks …

We move on then to the 1930’s, and there is not one man, be he an economist or not, who will now defend the economic policy which was applied in 1930. We have seen people crowded at factory gates in their thousands trying to get one job; we have seen people at police stations to collect the dole of 5s. 9d. or 8s. 6d. a week.

We do not say that the depression could have been avoided by monetary action. What we do know is that the misery and suffering of hundreds and thousands of men, women and children in this country could have been mitigated to a large degree had proper monetary action been taken …

We do not want the conditions of the depression to recur. In any emergency in the future we do not want to be obliged to go to the High Court to find out something when some crisis is happening; we want to ensure that the government of the country shall be in a position to apply through its agent, the Commonwealth Bank, the financial and monetary policy that will prevent, as far as monetary policy can prevent, the sort of thing that happened in the days of the depression. (4)

A Bank Employees’ Committee anti-Chifley Government float taking part in the Cherry Blossom Procession, Orange, NSW, 1949 (National Archives of Australia M1458, 4746309; Chifley personal papers)

Trade unions strongly supported nationalisation. On the other side, a vigorous coalition of bank officers and their supporters allied with the Liberal and Country parties and much of the metropolitan press to attack Labor. The argument against bank nationalisation turned into a wide-ranging attack against what Opposition Leader Menzies called Labor’s desire ‘to put the lives and affairs of ordinary citizens into bondage’. Dramatised advertising starring ‘Bob Freeland’ and ‘John Henry Austral’ put the anti-Labor case as the government was accused of socialism, communism, nazism and fascism – and sometimes all of these at once. (5)

Ultimately, the High Court and the Privy Council disallowed the 1947 banking legislation. (6) The attempt to nationalise the banks, along with discontent over petrol rationing, governmental restrictions persisting too long after the war, and other policies, led to Labor’s defeat in 1949. A host of reasons then kept Labor out of office for 23 years.

Looking just at banking policy, however, it seems clear that the concentration of banking power today in private hands is not all that different from what would have occurred had bank nationalisation succeeded. Just after the nationalisation announcement, the Sydney Morning Herald claimed that the plan would mean that the Commonwealth Bank would control £800 million in deposits and shareholders’ funds in the biggest nine banks and be the largest banking monopoly in the world. As noted above, the big four Australian banks today control more of our banking business than the top four banks anywhere else. Customers can judge the results of this in terms of rates and service quality. (Choice keeps tabs.)

Banks still, in Chifley’s words of 1937, affect ‘almost every phase of national life’. Chifley’s remarks about the balance between banking profits and service to the community also remain extremely apposite. If anyone wanted to make a case for a tax on bank profits, figures like those above would bolster the argument. They would also support an argument for breaking up large banks, an option which is being debated in other countries, as The Australia Institute noted.

This article has not touched on other disconcerting aspects of banking today, such as those relating to financial advice, private debt or housing prices. No doubt Ben Chifley would have had a view on each of these issues. Oberon, perhaps not.

This article draws upon the author’s thesis, Political Theory, History and the Australian Labor Governments, 1941-49 (MA, Monash University, 1974), available on microfiche at the National Library of Australia, and his article, ‘The effect of the Great Depression on the Federal Labor Governments, 1941-49’, Australian Journal of Politics and History, XXII, 2, August 1976, pp. 258-70.

The Honest History website contains information about a number of resources relevant to this article, notably biographies of Prime Ministers Fisher, Scullin, Curtin, Chifley and Menzies as well as general histories. Use the Search function and browse under ‘Themes-Strands of Australian history’.