A new Wallis Inquiry is not about competition

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Yesterday and today there are a number of stories floating around, fired off by a new Deloitte report written by Ian Harper and commissioned by the mutuals sector, arguing that Australia needs a new Wallis Inquiry into banking principally because there is not enough competition in the sector and the big banks are too big to fail.

While I can only agree that competition is sorely lacking, arguing that we need more competition is putting the cart several miles before the horse vis-a-vis either addressing too big to fail or a new Wallis Inquiry. After all, it was competition that brought us to our current impasse. Too-big-to-fail and the levels of competition are outcomes of financial system architecture, not the architecture itself.

No, the principal job of any new Wallis Inquiry is to return to first principles about what we want from our banks. For instance:

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  • Where have the banks benefited and failed Australia?
  • Why are they giant building societies instead of funding a better balance of business loans?
  • What is the appropriate balance between competition and security, or how can competition be made sustainable?
  • What is the appropriate balance between private profit and public risk?
  • How does funding the current account deficit effect all of the above?
  • How have the regulatory changes since the GFC affected all of the above?

Our banking system is unrecognisable in comparison to the mid-nineties. So is the world itself. We need a first principles inquiry, not one filled with half-baked agendas from this interest or that.

This is why it is also perfectly useless to appoint a guy like former Reserve bank Governor, Ian Macfarlane, as Joe Hockey has suggested, to run such an inquiry. You cannot get to first principles using guys that built the last system that failed.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.