According to the banking industry bible, Banking Day, the financial system inquiry that I proposed in 2009 alongside a bunch of other top academic and professional economists is still in play (others, such as professor Ian Harper, also subsequently lent support to this initiative). Indeed, the Treasury did not pull its punches in its confidential Red Book advice to the Treasurer, Wayne Swan, arguing, as we did in the open letter referred to below, that "Australia has not undertaken a comparable review since 1997 and we strongly urge you to make this a key priority in your second term":
‘Son of Wallis’ still conceivable
28 March 2011 7:15am
A new inquiry into the Australian financial system remains possible after a spokesman for the Treasurer, Wayne Swan, refused to rule it out on Friday. The spokesman was reacting to the Federal Treasury’s Friday release of material from its 2010 “Red Book” of post-election advice to the Government. The material advised the government that the inquiry should start “once markets have stabilised and G20 outcomes have become clear”. Media reports quoted a spokesman for the Treasurer as saying that “neither of these have occurred yet”. The newly released material shows Treasury strongly urged a full-scale inquiry into banking and finance. Treasury lists four key reasons for the post-crisis review:
• The GFC “highlighted the vulnerability of Australian borrowers and some retail and wholesale investors”.
• The GFC “showed systemic risk originating from outside the prudentially regulated sector”.
• Competition concerns “have been exacerbated through consolidation and the exit of key market participants” – such as, presumably, St George, BankWest and a number of mortgage managers.
• New global regulations are being developed and implemented in Australia and other nations in response to the GFC.
It argues Australia’s financial system is experiencing significant changes, saying that “the GFC, along with increasing integration with international financial markets and developing technologies, presents substantial challenges.” “Many countries are reviewing their financial regulation frameworks and are making substantial changes,” Treasury says. “Australia has not undertaken a comparable review since 1997 and we strongly urge you to make this a key priority in your second term.” The 1997 review was known as the Wallis Inquiry, and a possible further review has been dubbed “Son of Wallis”. A review would look at the lessons from the GFC and “the balance between the dual objects of stability and safety, and competition and efficiency”.
A new financial system inquiry has been supported by a number of leading economists, including former Wallis Inquiry architect Ian Harper and, in a 2009 open letter, economists Joshua Gans, Nicholas Gruen, Christopher Joye, Stephen King, John Quiggin and Sam Wylie. It was also urged last year by Opposition Treasury spokesman Joe Hockey as one of his nine suggestions for the financial system.
The advice to conduct the review was blacked out in the 2010 Red Book’s original release. Treasury said, in releasing the new material on Friday, that its latest decision “took into account the weight given to public interest, the passage of time and subsequent events, including public disclosures, since the original decision.”
