Banking and Financial Reform Group Reform Proposals

1. Banking and Financial Reform GroupReform Proposals

2. Items considered 1. Separation of investment banking from retail (narrow) banking 2. National public bank 3. State banking 4. Government low interest loans for infrastructure 5. Ethical banking and accountability 6. Banking competition 7. Entrepreneurial bank 8. Financial speculation and bank solvency 9. Monetary reform10. Property debt11. A modern debt Jubilee

3. Bankers are aware of the need for banking reform

4. No 1 Separation of investment banking from retail (narrow) banking Adequately regulating the financial sector to ensure full demarcation of merchant and investment banking from retail banking. More generally, the megabanks (“too big to be allowed to fail”) need to be broken up, in terms of their complexity and size. The current giant investment banks were originally not banks at all -- they were organisations which handled securities. Relaxed regulatory arrangements allowed them to move into retail banking and to exploit the privilege of being able to create credit money to their commercial advantage.

5. Separating investment banking from retail banking

6. No 2 National public bank Creating a national Australian public bank, along the lines of the original Commonwealth Bank, to compete with the other commercial banks in providing retail banking facilities for the public and business. This bank to also provide funding for selected socially and environmentally friendly ventures not regarded as sufficiently profitable for the private commercial banks.

7. No 3 State banking Empowerment of local and state governments to divert their funds from the largest private banks to alternative banking institutions large enough to take the deposits. An obvious solution is for states to: re-establish their own public banks capitalised with their rainy day funds, funded with their own revenues as a deposit base to be used for supporting the needs of local businesses and industries

8. Examples of Community & State Banks around the World North Dakota Indiana India Pakistan Mauritius

9. Government low interest loans for infrastructure • Creation of a government facility to allow for: • Provision of low or zero interest loans, from money created by the central bank (in Australia, the Reserve Bank of Australia) • supporting environmental & infrastructure projects, particularly those which can generate a return on the money invested. Such a scheme could be directed through public banks • This type of proposal was advocated and lobbied in the U.S. during the past two decades by Mr Ken Bohnsack, and his movement was known as ‘Sovereignty’. No 4

10. Ethical banking and accountability Establishment of ethical standards, as well as social and environmental accountability, for all banking and investment practices. Ethics is not just about detecting, revealing and prosecuting fraud and corruption, it's about choosing and implementing an ethical approach, supported by adequate regulation. No 5 Having ethically organised banking institutions in competition with other institutions will encourage ethical standards and practices across the sector – e.g. the Triodos Bank in the Holland only lends for ethically viable projects.

11. Keeping banks ethical

12. The LIBOR banking scandal: “This dwarfs by orders of magnitude any financial scam in the history of markets”Andrew Lo, Professor of Finance, MIT

13. Prosecuting bankers associated with fraud and corruption

14. No 6 Banking competition Enhancing banking competition by strengthening incentives for establishing and developing cooperative banking institutions, including community banks, credit unions and building societies.

15. Keeping banks competitive

16. No 7 Entrepreneurial bank Creation of a special category of banking institution - an entrepreneurial (innovation) bank - able to provide finance for bridging the gap between (a) research and development (b) project capitalisation in order to make the items developed market ready.

17. No 8 Financial speculation and bank solvency Developing strategies for controlling the tendency of commercial banks to create too much debt, which leads ultimately to asset bubbles, market crashes, and a perceived need to bail-out insolvent banks. In particular, leveraged speculation on the prices of pre-existing assets needs to be much less than it has been in recent times. Items 9 and 10 provide some mechanisms which would contribute to effecting such a reduction.

18. Keeping banks Solvent

19. Restraining banks from supporting asset speculation

20. Monetary reform Devising and operating a financial system in which all money used by the public is created by the Reserve Bank of Australia, rather than the current system where most of our money supply is bank credit money created by retail depositories. Several models for ensuring that all money in use will exist exclusively as a form of state fiat money have been worked out. The first such model was the 1930s Chicago plan, which had the support of some of the most distinguished economists of that era. Positive benefits include a reduction in leveraged speculation, an end to the necessity to have reserves operating in parallel with deposits, and a possible end to banks’ time (term) deposits. A suitable alternative to time deposits would be government infrastructure bonds. No 9

21. No 10 • Property debt - Prof Steve Keen’s proposals: • Lending for real estate and other property to • be based on the rental income (actual or imputed) of the property being purchased. • 2. The debt that can be secured against a • property to be limited to (at most) ten times • its annual rental income.

22. No 11 A modern debt Jubilee Implementing a program of debt forgiveness (a debt Jubilee), as an alternative to 10-15 years of slow repayments and bankruptcies. The process to involve directing newly created money to bank accounts of the public, and requiring that the first use of this money must be to pay off existing debt. The debt jubilee may be funded in the same way that quantitative easing for the financial sector has been funded - by central bank money creation, and for the same reason – to compensate those holding assets whose real value has fallen (e.g. in the case of the public, property prices), owing to a collapsing asset bubble. This would counter deflationary pressures. New loans from the financial sector would be directed at purchasing other more stable types of assets.

23. There are Jubilee debt eradication organisations around the globe