Broker leads call for 'People's Bank'

Mortgage broker and economist Nicholas Gruen is one of six economists who have called on the government to establish a 'basic savings' alternative to the four major banks

Under the proposal, dubbed the 'People's Bank' in the major newspapers, the government would set up a "publicly-owned entity, akin to KiwiBank in New Zealand, to offer essential services in Australia’s finance sector that leverage off unique government infrastructure (eg, Australia Post, the tax system, and the government bond market)".

Gruen, CEO of Lateral Economics and Peach Discount Mortgage Broking, along with Rismark International founder Christoper, Joye, Melbourne Business School academics professor Joshua Gans and Sam Wylie, Monash University professor Stephen King and former ACCC commissioner, John Quiggin, were all signatories of the open letter which highlighting the fact that the four major banks have been the "biggest beneficiaries" of the sub-prime "chaos" due to receiving "the most favourable regulatory treatment under the existing system".

The open letter said it remained uncertain to what degree Australia's successful navigation of the "catastrophe" was due to "our own regulatory foresight or just good luck".

"We would do well not to discount the possibility that a 'good roll of the dice' left us without more significant system failures such as those seen in the UK. In future crises, we may not be so lucky," it said.

The economists warned that "as a nation with a large foreign debt that has continually increased its liabilities via enormous current account deficits Australia's vulnerability to foreign shocks is in many respects greater than most of our peers".

It questioned what impact "whole or partial nationalisation of banking systems around the world" would have on Australian institutions ability to source foreign credit, pointing to recent actions by the UK government and the new regulatory regime in the US under president Obama in particurlar.

They called on the government to thoroughly review the existing system and evaluate whether changes need to be made to it.

To read the letter in full click here

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