Three bloggers have united to promote a government inquiry into the Australian banking system by launching a private "Son of Wallis Challenge".
The three, Houses and Holes, Delusional Economics and The Unconventional Economist, plus David Richardson of The Australia Institute, have contributed to a $1,000 prize for the best submission that examines the risks and rewards in Australian banking's large offshore debts, as well as how securitisation should be used in any new system.
The feisty move arises from the blogger's shared despair at a banking debate that is mired in the lowest common denominator politics of whether banks should be allowed to change interest rates beyond the Reserve Bank. Meanwhile, the larger questions surrounding the failure of the financial services regime envisioned by the Wallis Inquiry go unanswered.
Wallis divided regulation of private credit provision into halves. On one hand, deposit-taking banks were regulated by the Australian Prudential Regulation Authority (APRA). On the other, market-mediated credit providers, like non-banks, weren’t subject to any particular rules at all.
During the meltdown, however, neither the deposit-taking institutions nor the market-based credit intermediators were able to sustain their independence as private firms.
Mid-tier banks and non-banks either collapsed or were eaten by the big banks. The remnants have been supported by government purchases of their securities via the Australian Office of Financial Management, to the tune of almost $16 billion.
The big banks required several Federal Government guarantees across their liability portfolios. For both local deposits and wholesale funds.
As shadow treasurer Joe Hockey wrote in The Australian Financial Review yesterday, all of these supports were explicitly rejected by the findings of the Wallis Inquiry.
However, that is not the worst omission from the debate.
Since the GFC, the big banks have continued to expand their exposure to global capital markets - with ADIs now owing over $500 billion to offshore creditors.
As Westpac recently confessed and commentators are more frequently accepting, the banks are doing so in the confident knowledge that in the event of another global, regional or local freeze in their funding markets, that they will again be bailed out by a return of the wholesale guarantee.
Yet the banks use the excuse of these same offshore borrowings as the rationale for unilateral interest rate hikes.
Now, as the frenzied but limited bank debate turns the populist heat upon the Government, it is preparing a new set of measures to boost competition in the hope that that will prevent the banks abuse their new market power.
This has suddenly unleashed a stream of analysts, economists and vested interests who are campaigning for a Wallis architecture patch-up job by boosting government guarantees for securitisers.
This despite securitisation itself being central to the GFC collapse.
To help answer some of these questions, the Son of Wallis Challenge is open to submissions on the following terms of reference:
1. What are the risks and benefits of large bank wholesale debt and how should each be addressed?
2. What, precisely, is the ongoing status of the Federal Government guarantee to the large banks wholesale debts and what are the implications for the budget?
3. Given securitisation was at the centre of the GFC, what role should it play in renewed competition?
4. How can competition be returned to the financial services sector, as well as balanced against the need for stability in the light of the first three questions?
Through the challenge the three bloggers hope to throw a little online shame at the Government and educate the public, as well as generate new ideas in the struggle to re-regulate banks after the GFC.
The judges of the prize will be three bloggers, plus David Richardson of The Australia Institute and Deep T., a senior financial services insider who is fed-up with his colleague's reliance on public support, and regularly blogs at Delusional Economics.
Enter your submission at sonofwallis@gmail.com.
Deadline for submissions is December 13. The winner will be announced shortly afterwards, as well as published at BusinessDay and The Drum!
