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Normally when one hears another uttering the words, “I have a 9 point plan”, its McHugh J elaborating upon an over-complex test for something or other, or a politician laying out a set of motherhood statements.

This time, that person is Joe Hockey, Shadow Treasurer. Now, as much as I normally make fun of Joe Hockey for being lazy on policy and details (a huuuuge flaw in a Shadow Treasurer or Treasurer), the policy makes sense:

1. Let’s give the ACCC power to investigate collusive price signalling (that is, oligopolistic behaviour), which is exactly what Graeme Samuel has called for;

2. Let’s encourage APRA to investigate whether the major banks are taking on unnecessary risks in the name of trying to maximise short-term returns that conflict with the preferences of those that backstop the system, namely taxpayers;

3. Let’s formally mandate the RBA to publish regular
rather than irregular
reporting on bank net interest margins, returns on equity, and profitability so that we can all determine whether the major banks are extracting monopolistic profits; that is, whether taxpayers are effectively subsidising supernormal returns;

4. Let’s investigate David Murrays proposal for Aussie Post to make its 3,800 branches available as distribution channels for smaller lenders. To be clear, the Coalition does not endorse Australia Post assuming balance-sheet risk and getting into the banking business itself;

5. Let’s ask the Treasury and the RBA to investigate ways to further improve the liquidity of the residential and commercial mortgage backed securities markets, which are an alternate source of funding for smaller lenders, including consideration of the Coalition proposal to extend the Governments credit rating to AAA rated commercial paper in those markets to improve liquidity;

6. Let’s explore further simplification of my beloved Financial Services Reform Act, to make the business of actually getting out and doing business easier and simpler;

7. Let’s direct APRA to explore whether the risk-weightings on business loans secured by residential properties are punitive. Many small businesses tell me that they do not receive sufficient financial benefit from pledging their family home to secure their borrowings;

8. Let’s commission a resolution to the debate about whether the banks should be able to issue .covered bonds., in the same way other jurisdictions allow their banks to, which provides a more affordable line of credit;

9. And let’s wrap up all of this work into a full review of the financial system
a Son of Wallis, or Grandaughter of Campbell, whatever you will.

I am particularly fond of point (1), (3) and (5). What’s more, this plan coheres with good economic policy and with the notion that banks should do what banks do best – which is risk allocation in the economy. And he does that whilst acknowledging (in point 2 and 5) that this theoretical position has been modified by the government’s bank guarantees.

I do have a slight quibble about (5) in that it extends ‘too big to fail’ to smaller banks -> but, as I have argued, something has to be done to make them competitive with the big banks and the securitisation market is likely to be key to that.

Point (8) is rather interesting too. I know its been a big debate in the finance community, but I’m not aware of the pros/cons. As you may know, I worked in equity markets and not in debt markets.

Of course, a 9 point plan won’t work unless backed up by a 90 page policy paper, but its a good start. Especially after his gaff earlier last week.


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