Reforming Australia’s financial industry in “Japan Post Bank: The great postal banking success”

“Japan Post Bank: The great postal banking success – Interview with Daisuke Kotegawa” (Citizens Insight / Australian Citizens Party, 15 February 2021)

In this informative interview conducted by Robert Barwick with Daisuke Kotegawa (Research Director at the Canon Institute for Global Studies, and former Deputy Director at Japan’s Ministry of Finance and representative of Japan to the IMF), the case is made for the separation of commercial banks and investment banks and for Australia to reintroduce a savings bank for individual deposits. First of all Barwick stresses that the main aim of the interview is to emphasise the need for Australia to have a savings bank separate from the Gang of Four banks (Australia & New Zealand Banking Group, Commonwealth Bank, National Australia Bank, Westpac Banking Corporation) if the country is to restore and rebuild its manufacturing capabilities and national and state infrastructures. He then allows Kotegawa to give a history lesson on how having a savings and commercial bank for individual depositors and businesses played a large role in stimulating Japan’s rise as an industrial power during the late 19th century under the Meiji emperor and beyond. This financial foundation helped fuel the resurgence of Japan as an industrial powerhouse after the devastation of World War II.

Barwick and Kotegawa do not discuss how Australia might go about creating a savings and commercial bank from scratch – Citizens Insight / Australian Citizens Party has previously touted the possibility of Australia Post taking on the role of a savings bank in the way the Japanese postal system acts as a savings bank in other presentations – but they do discuss the consequences of not separating savings and commercial banks from investment banking, or what they refer to as “Glass-Steagall” separation. “Glass-Steagall” is the popular term referring to the provisions of the 1933 United States Banking Act (the so-called Glass-Steagall act) separating savings and commercial bank functions from investment bank functions. This act was repealed by the Clinton government in 1999, paving the way for investment banks to take over commercial and savings bank functions to plunder their deposits, thus helping to set the scene for the 2008 Global Financial Crash.

At one point in the interview Barwick and Kotegawa discuss how a public savings bank and investment banks operate: generally investment banks are looking for financial returns which are usually short-term in nature, requiring projects to generate profits quickly, whereas public banks invest for the long term in projects that generate financial returns many years, even decades, later. Such long-term projects usually involve large amounts of spending upfront and tend to involve infrastructure construction and maintenance. It is apparent then that investment banks are not interested in funding projects that have a nation-building and uniting aspect and which would generate benefits more intangible and abstract than what investment banks can conceive of. The interests of investment banks can be predicted to lead them into supporting projects that appeal to their directors or shareholders’ interests, and we can surmise that they will have an agenda premised on immediate reward gratification.

The most significant part of the interview comes late where indeed Kotegawa points out that the lack of separation between savings and commercial banks on the one hand and investment banks on the other encourages financial gambling and instability in the entire financial system leading to the 2008 GFC and forcing governments to bail out investment banks using hundreds of millions, even billions, of taxpayer money that could have been invested in improving infrastructure and social welfare so as not to lose the confidence of ordinary savers and businesses in the financial system. In addition Kotegawa points out that Australia still has significant industries in the mining and agricultural sectors that could benefit from the existence of commercial banks whereas nations like the United States and the United Kingdom no longer have very significant industries for which a viable commercial banking sector is needed.

Viewers may have some trouble understanding Kotegawa while he speaks and perhaps some subtitling for both him and Barwick could have helped as the topic is quite specialised and requires some general knowledge on the part of viewers of how banks operate and the history of banking in Australia and the United States. One criticism I have is that the interview does not address how a public bank in Australia, once established, does not eventually go the way of the Commonwealth Bank of Australia in being privatised and coming under the thumb of Wall Street. Perhaps that is a topic for another Citizens Insight interview.

Interestingly this interview caught the attention of African Agenda, a website that focuses on socialist development and positive change for Africa and Africans.