By Allen Myers
A few weeks ago, the Melbourne Age-Sydney Morning Herald Good Weekend magazine ran a feature that described unprecedented levels of dissatisfaction with banks and bankers. Public opinion polls show that bankers are distrusted almost as much as used car salespeople. The article described a growing trend for "community banks" to be set up either to replace a bank that has abandoned regional towns or to provide services that banks, while still present, no longer provide adequately.
There seems little question that the level of anger at banks has increased substantially over the last 15 years or so — the period since financial deregulation was begun by the federal Labor government.
Before deregulation, banking was essentially a monopoly. Because of that monopoly position, it was generally accepted in politics that government should exercise some degree of control over them, which was done both directly and through the market power of the Commonwealth Bank (before it was privatised).
Deregulation, the Labor government of the day assured us, would end this privileged monopoly. Competition between banks would then lead to lower loan rates, higher rates for depositors and better services for bank customers.
Clearly, the opposite has happened. Real interest rates (the difference between the rate paid and inflation) for borrowers have remained high while it is almost impossible to find a deposit account that pays any interest at all on deposits of less than several thousand dollars: the "spread" between what banks pay and what they charge for money has increased markedly, especially in regard to credit cards.
Fees and charges by banks multiply continuously: we are charged fees to withdraw our money from an ATM, or over the counter, or merely to find out how much of our money the bank is holding. The Good Weekend article reported that bank fees and commissions increased by $322 million in 1996, and increased by $1.32 billion in 1998.
As for "service", the word has almost become a bad joke. Even if you're resigned to paying for every deposit, withdrawal, transfer or scrap of information, growing numbers of people have simply been written off by the banks: over the last eight years, some 950 rural branches have been closed, and city branches also have become much fewer and farther between.
Why did bank deregulation turn out this way? Why didn't increased competition lead to a better world for bank customers, the way the neo-liberal theologians promised?
The short answer is that the idea of competition benefiting consumers has never been anything better than a gross oversimplification.
First of all, "competition" is a very relative matter. The competition between farmers and between greengrocers may keep the price of fresh vegetables reasonable, but it's much easier to become a farmer or greengrocer than it is to become a banker.
Because it takes tens of millions of dollars to compete even locally in the banking business, banking is still more monopolistic than most types of business.
Secondly, businesses that compete with each other do not compete in providing benefits to consumers. They compete in making profits.
Sometimes, especially when there are a large number of competitors, competition for profits can partly take the form of providing a better or cheaper product. But even then, it can also take far more antisocial forms: driving down wages or cheating customers, for example.
After financial deregulation in the 1980s, competition between banks partly took the form of lending as much money as possible, without sufficient concern for the ability of borrowers to repay. Over-lending of this type was a factor in the 1990 collapse of Victorian building societies.
The banks' competition for profits is also behind the closing of branches, cutting of services and imposition of more and more fees.
Does this mean that monopoly is preferable to competition? Not at all. It just means that capitalism is set up so that working people lose either way, and that we shouldn't be fooled by promises of what "free markets" will do for us. (And in any case, the eventual result of free competition is monopoly, as the more successful competitors swallow up the less successful.)
Nor is the kind of regulation that existed before the early '80s really an answer to the greed of the banks and other capitalist firms. While restrictions on the freedom of capitalists to exploit us are always welcome, it is too easy for capitalist governments to turn regulation into disguised ways of protecting and increasing profits; that's part of the reason that deregulation was easy for the neo-liberals to sell.
The kind of regulation that's needed to do away with exploitation is, not a list of rules from the Reserve Bank, but democratic control of production by the entire society — in a word, socialism.