Questioning Reserve Bank of Australia (RBA) – Cash Ban and Bail-In

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One Nation has led the fight in the Senate against the Cash Ban bill, which makes any cash transaction over $10,000 illegal. Our efforts stopped the bill from passing, but the Government has not formally withdrawn the bill. At this estimates we started a campaign to have the bill removed from Senate business permanently. Our first questions asked the Reserve Bank if they still thought the cash ban was a good idea.

We didn’t get the answer we wanted, it seems the Reserve Bank is still trying to force people into the banking system and take away their right to decide what to do with their own money. Cash Ban Explanation – https://youtu.be/93EigYTWe5s

Then we asked about our bill coming up later next month to prevent banks using money deposited with them to pay their own expenses in a bank emergency.

What was obvious to Senator Roberts is that the Reserve Bank had no idea they had made a submission on our bail-in bill. The Reserve Bank was not on the list of submissions. Where did their submission come from? Could the Government have written it, not the Reserve Bank? The Reserve Bank is an independent regulator, it would be a scandal if the Government is writing their policy for them. One Nation will pursue this matter further.

Transcript

Senator ROBERTS: Thank you for attending today. I’ve seen reports that the Reserve Bank has printed an extra $12 billion in banknotes this year to keep up with demand. Do you have the accurate figure, please?

Dr Debelle: I do. I can provide you with an accurate figure. Yes, we have printed extra bank notes because there has been additional demand. Between 16 March and 6 August we printed 220 million banknotes worth $12.5 and they were issued into circulation. I don’t have the most up-to-date information to hand, but I can provide that.

Senator ROBERTS: If you could, that would be appreciated.

Dr Debelle: I don’t have it completely to hand. I may have it before we finish this line of questioning.

Senator ROBERTS: That’s impressive. The Reserve Bank’s written answer to my question on notice from the February estimates—it’s reference AET93—included this response—I’m slightly paraphrasing: ‘While cash is used less frequently in Australia, it is still widely held for precautionary purposes and some members of the community really very heavily on cash for their daily lives. Cash remains an important payment method for older households, those with disabilities and those living in rural and remote areas where electronic banking may not function reliably.’ Do you consider that people are voting with their feet and withdrawing cash to get ahead of the cash ban bill?

Dr Debelle: What we have seen is increased demand for banknotes, as you just highlighted in your previous question. I think that is mostly as a store of value. What we’ve seen is around 50s and 100s in particular; actually mostly 50s. I think it is primarily as a store of value, particularly in a world where interest rates are as low as they are.

Senator ROBERTS: So people have an alternative in cash. People need that alternative. Does the Reserve Bank support withdrawal of the widely criticised cash ban bill and instead support the development of a bill that actually addresses money laundering and tax compliance? In other words, is it time to kill the cash ban bill?

Dr Debelle: We’re part of the Black Economy Taskforce and we’re comfortable with the recommendations of that.

Senator ROBERTS: Item 1.27 of the Economics Legislation Committee’s report on the bail-in bill includes this statement:

The Reserve Bank of Australia … indicated the information provided by the Treasury to the committee’s inquiry was consistent with their views.

Is this correct?

Dr Debelle: I have no reason to suspect otherwise.

Senator ROBERTS: How did the RBA communicate with the committee? Because my office saw no submission.

Dr Debelle: I will have to take that on notice. I did not have direct involvement with this. Michelle, I don’t know if you can answer this?

Ms Bullock: I didn’t have. I know we had someone on the Black Economy Taskforce but I’m not aware of this particular bill.

Senator ROBERTS: Could you also send me the full comments that you made to the committee.

Dr Debelle: Sorry, the committee on the bail-in bill?

Senator ROBERTS: Yes, please. Your views to the committee include this statement: ‘The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 did not include a statutory power for APRA to write down or convert the interests of depositors as unsecured creditors of a failing ADI.’ Is this correct?

Dr Debelle: Yes. Michelle, I think you can confirm that.

Ms Bullock: Yes, our view is that it does not include those sort of provisions.

Senator ROBERTS: The G20 Financial Stability Board’s Key attributes of effective resolution regimes for financial institutions, adopted by Australia in October 2011, states: ‘Powers to carry out bail-in should enable authorities to convert into equity’—meaning shares of the bank in this case—’all or parts of unsecured creditor claims.’ And elsewhere it says that means deposits. We have a clear obligation, then, under this agreement, to provide a bank bail-in mechanism. If the 2018 act did not do that, where else is that provision?

Dr Debelle: We have depositor preference, as you may be aware, and a deposit guarantee—sorry, we have a deposit guarantee scheme, which guarantees bank deposits.

Senator ROBERTS: I understand the timing of that doesn’t quite back up what you’re saying. Let me look at that more closely. New Zealand responded to the Financial Stability Board’s instruction to pass bail-in laws with their open bank resolution system. The New Zealand Reserve Bank explains this is a follows: ‘If a bank fails, it is placed under statutory management and closed. If losses cannot be covered by shareholder funds, then a proportion of depositors’ funds are set aside and frozen for the purpose, then the bank reopens.’ That could not be clearer. New Zealand has a bail-in law. The UK and Canada have the same bail-in laws. I ask you again, if the crisis resolution act did not establish bail-in laws, where are ours?

Dr Debelle: As I just said, we have a depositor protection scheme in Australia. Michelle, do you want to add anything to that?

Ms Bullock: No, only that our understanding of the bail-in laws, and I think APRA’s understanding of the bail-in laws, is that they apply to certain hybrid instruments which may be bailed in, not depositors. Depositors have depositor preference and also the Financial Claims Scheme. My understanding, and I think it’s the common understanding, is that bail-in does not apply to deposits in Australia.

Senator ROBERTS: I put it to you that it is our obligation under the G20 agreement to conduct a bail-in if a bank fails, that the 2018 act was specifically written to allow a bank bail-in, and that the wording chosen in the 2018 act was deliberately obtuse to hide that fact.

Dr Debelle: I’d like to confirm that we have depositor protection. You can take this issue up with APRA when they come later on, but that’s the state of play in Australia.Senator ROBERTS: Thank you. I have some more questions to put on notice.

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Questioning Australian Prudential Regulation Authority – Debanking

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De-banking is the process of banks closing accounts for businesses or individuals. All the big banks are now de-banking clients and claiming that this is for Anti Money Laundering reasons, but it is just not true. At our Senate Estimates questions, APRA agreed they had authority in this area and also agreed they were doing nothing about this scandal.

The companies being de-banked are bullion dealers, bitcoin exchanges and cash handling companies working to keep ATMs in clubs and pubs full and so on. All of the companies that have been de-banked that my office has looked at are legitimate, long-established companies that are following the law.

The only explanation for de-banking is this – banks are shutting down their competitors. This is an abuse of their market power that will prevent competition in banking and reduce freedoms Australians enjoy as to the choice of what to do with their own money. This is bank greed and the supposed-regulator the Australian Prudential Regulation Authority are facilitating this by looking the other way.

The Cash Ban Bill produced by Treasury works with the banks by de-banking their rival businesses and then preventing those businesses to move over to cash payments. This effectively puts these banking rivals out of business.

Transcript

Senator ROBERTS: Moving onto the practice known as debanking, is the regulation of debanking practised by the banks your responsibility?

Mr Byres: I don’t know that I can talk about a regulation for debanking. The concern is that various customers no longer get banking services. It’s certainly not a primary issue for APRA. We understand the issue exists. In many cases, it relates to banks being able to comply with anti-money-laundering and counterterrorist-financing regulations.

Senator ROBERTS: That’s where I’d go. Commander Security is an Australian cash security company. It transits cash, and a large part of that is refilling third-party ATMs. So it’s a competitor to the banking cartel. Commander Security is fully AUSTRAC compliant and operates its accounts lawfully. On 14 October 2020, it received a notice from Westpac cancelling Commander Security’s banking accounts effective from 26 October. It has been refused accounts at other banks. Where is the protection of interests of depositors in this process?

Mr Byres: The depositors of the banks themselves are protected. I’m not aware of the specific case that you’re referring to. We’re happy to look at that.

Senator ROBERTS: Let’s look at another one then. Melbourne Gold Exchange sell bullion to retail investors. It is also AUSTRAC compliant and operates legally. It was debanked by Westpac, then the Commonwealth, then the NAB and now cannot get an account anywhere. Would you categorise bullion as a rival store of wealth to  cash in the bank?

Mr Byres: No, I wouldn’t actually. I think cash in the bank has a very stable value and bullion does not. But that’s a discussion about investment rather than safety.

Senator ROBERTS: Bullion’s not stable? Okay. The point of this question is simple: banks are debanking businesses that they have decided are an unacceptable risk. When my office looks at these businesses, they are bullion dealers, non-bank companies providing rival services to the banks, like Commander Security, and bitcoin exchanges. APRA appear to be turning a blind eye to Australian banks debanking their rivals. Can you explain that?

Mr Byres: I don’t think we’re turning a blind eye to it. We understand the issues there, but banks are making decisions based on their risk profile as to whether they want to take on the risk associated with some of these customers. Clearly what we have seen in recent times is that the penalties for getting it wrong are significant. That’s not to condone the banks but to simply make the point that they’re taking it very seriously.

Senator ROBERTS: When the Melbourne bullion company was debanked, Westpac debanked not only the accounts but also the private accounts of the owners and the private accounts of their employees. APRA is responsible for protecting the financial interests of depositors. Does APRA consider this acceptable behaviour?

Mr Byres: Just to be clear, our obligation to depositors is not a consumer protection obligation, it’s making sure that people get 100c in their dollar—

Senator ROBERTS: I think you’re also responsible for making sure that there’s adequate competition.

Mr Byres: We have to be mindful for competition, but we don’t have a mandate to promote or establish competition. We have to deliver safety and soundness having regard to a range of other factors: competition, efficiency, ability and competitive neutrality. But we’re not primarily a competition regulator.

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Questioning Australian Prudential Regulation Authority (APRA) – Bail in Laws

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Bail-in measures are designed to inject capital into a bank that gets into trouble. The bank is authorised by the corporate regulator – APRA to take money out of the bank accounts of depositors and to use that money to pay their own bills. The depositor loses their money but does get shares in the bank, which will be worthless, but may come good years down the track if the bank doesn’t go broke.

APRA maintain that the emergency banking measures passed in 2018 by the Turnbull Government did not include a bail-in power. Further, if they used the general powers in that act to order a bail-in, that bail-in would be declared “invalid”.

This is because the Banking Act protects deposits. One Nation’s legal advice is that the emergency powers over-rule the general protections in the Banking Act and APRA do have bail-in powers. One Nation have proposed a bill to clear this up by adding one simple paragraph to the Banking Act that says APRA do not have the powers to order a bail-in.

APRA doesn’t want our bill passed because they know they do have bail-in powers and don’t want us to take them away. This round of questions did extract an admission that APRA does have bail-in powers, but not for deposits. So at least we are getting a little more honesty out of APRA on this matter. We also spoke about their emergency bank rescue plans.

One Nation feels these plans will show a bail-in is part of the plan. Getting our hands on those plans won’t be easy.

Transcript

Senator ROBERTS: Thank you all for participating tonight. APRA’s submission 197 to the inquiry into our bank anti bail-in bill—and I am slightly paraphrasing—says that APRA does not have the power to direct Australian authorised deposit-taking institutions to bail in a deposit because that would be inconsistent with the objects of the Banking Act, particularly the paramount objective of protecting depositors, and that such a direction would be found to be invalid. Who would find it invalid?

Mr Byres: It could be challenged by anyone who wished to take it before the courts—that would be the answer. Our direction could be appealed to a court.

Senator ROBERTS: That is my understanding, too—that only a court can find an APRA direction invalid. Can I confirm that it is your position that if a bail-in occurs those depositors who have lost some or all of their money must then take their banks to court at their own expense, with millions of dollars in legal expenses, to seek an order declaring the bail-in invalid? They will have very little in the way of funds to fund that because their deposits have been cleaned out.

Mr Byres: Your question is premised on the assumption that there is a bail-in. I think in our correspondence with the committee and in our submission to the committee on this bill we made very clear that our whole purpose is to protect depositors, not to bail them in. A bail in of depositors would be anathema to the way we operate and our statutory purpose. So I think it is a scenario that is entirely hypothetical, because that would not be a direction that we would give.

Senator ROBERTS: The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 says APRA has a right to enact emergency powers and they are often said to be overruling. Does that emergency directions power have primacy over the general banking directions in section 2A in the Banking Act?

Mr Byres: I’m not sure where exactly you are referring to, but you are right: we have strong powers to deal with an emergency situation where a bank or another financial institution is in severe financial stress. The purpose of that in the case of a bank, to be clear, is to protect the community and depositors.

Senator ROBERTS: The IMF disagrees with APRA on the strength of the section 2A protections. The IMF has stated that:

The new ‘catch-all’ directions powers in the 2018 Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill provide APRA with the flexibility to make directions to the ADIs that are not contemplated by the other kinds of general directions listed in the Banking Act.

If the IMF are correct, you do have bail-in powers. Is the IMF wrong?

Mr Byres: The bail-in powers that we have relate to capital instruments. Again as we put in our submission to this committee when it conducted its inquiry into that bill, the objective is very clearly to have bail-in for subordinate capital instruments. That act and, in particular, the sections of that act which attracted a lot of attention were designed to make sure that there was legal certainty and that the contractual arrangements that are in those subordinated debt and hybrid instruments would work in this.

Senator ROBERTS: Our bill simply clarifies that you do not have bail-in powers, which is what you’re  telling me here today. Why are you opposing our bill when it does nothing more than clear up what the law is saying that you say it is?

Mr Byres: Sorry, Senator. We do have bail-in powers. They relate to certain specific instruments. As the law currently applies to banks, it applies to their subordinated debt or, in the jargon of the bank supervisor, tier 2 capital, and it applies to hybrid capital instruments or additional tier 1 capital. So we do have bail-in power. It was designed to give legal certainty to the bail-in of those instruments if needed. It does not apply to deposits.

Senator ROBERTS: Our bill simply clarifies that it doesn’t apply to deposits, so why would you oppose it? It doesn’t stop the bail-in of other funds, appropriately, but it would stop the bail-in of deposit funds: cheque accounts, savings accounts, small business accounts, private accounts. That’s all it does, so it’s agreeing with you. Why would you oppose it?

Mr Byres: The view we put in the submissions was that it was not necessary because we thought the current law was adequate.

Senator ROBERTS: It doesn’t change anything for you; it complies with what you just stated. I can’t understand why you’d oppose it. It makes two minor changes that are in line with what you’re saying.

Mr Byres: As we said in our submissions, we didn’t think it was necessary.

Senator ROBERTS: Okay. APRA’s 2018 paper titled ‘Increasing the loss-absorbing capacity of authorised deposit-taking institutions to support orderly resolution’ states:

APRA will need to work with ADIs on an ongoing basis to ensure adequate resolution plans are developed and maintained. These plans—

supposedly—

outline how APRA would use its powers to manage the orderly failure of ADIs and identify steps that can be taken to remove barriers to achieving effective resolution outcomes.

Have those plans been drawn up? If so, what are they?

Mr Byres: I’ll start, and then I’ll see if my colleague Mr Lonsdale wants to jump in. One of the things we have to do is prepare for the unexpected. We can never provide a guarantee that a bank—or, for that matter, an insurer or another type of financial institution—won’t get into financial difficulty. We need to have crisis plans, like contingency plans, drawn up for how we would respond in the unlikely—and I stress ‘unlikely’—scenario that a bank was close to failing or was failing. The sorts of plans that we have—we’ve just stepped through what actions we might be able to take and how we would achieve an orderly outcome, but, as I’ve said many times already in my answers to your questions, this is with a view to protecting depositors.

Senator ROBERTS: Just to interrupt there: you said the plans would be drawn up. Have they been drawn up is what I asked?

Mr Byres: We have plans drawn up, yes, but they could always be improved. The institutions themselves are constantly evolving and changing, so the plans always need to be updated to make sure they continue to be current.

Mr Lonsdale: I would just add that this has been a big priority for us this year. In fact, the government has provided APRA with some funding in the budget. A significant portion of it focused on recovery and resolution development, so, as Mr Byres said, there’s a lot of work in continually keeping the plans updated and making sure they’re operationally fit for purpose.

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