The economists' call for an update of the landmark 1997 Wallis Inquiry yesterday received backing from a key member of that inquiry, Ian Harper who until Tuesday chaired the government's Fair Pay Commission.
Now free to speak after unveiling his final pay decision, Professor Harper told The Herald/Age the entire "intellectual framework of his 1997 inquiry had been rendered redundant by the financial crisis.
"Our framework was essentially the efficient markets theory," he said...
"We thought we had found the ultimate fixed point in the universe, namely the market price, and so we built on top of that the regulatory framework."
"But then there was no market price. The evolution we expected has stopped, reversed and gone the other way."
Professor Harper said it was vital that the new inquiry took place straight away.
"Right now overseas they are designing the next global system which they will ask us to sign up to," he said.
"We need to know the answers to the questions they will ask us. An inquiry here can be an information-gathering exercise that will stop us getting lumped with the wrong system."
Treasurer Wayne Swan held the door ajar to the possibility of a new inquiry saying the government was "always mindful of how competitive our financial system is and prepared to look at other arrangements".
He is understood not to have ruled out the idea absolutely, merely to be wary of starting an Australian inquiry one while high-level international discussions are underway.
Mr Swan was reluctant to embrace the economists' suggestion of a government-run "people's bank" to compete with the majors saying the banks were competitive and interest rates low.
The idea of a people's bank was embraced by Senators' Bob Brown and Steve Fielding but firmly rejected by Opposition Leader Malcolm Turnbull.
"The reality is that Australia has a very good banking system," he said. "The dominance of the banks has been in large measure been created by the Rudd Government itself through its deposit guarantee."
However he welcomed the idea of an inquiry telling a business audience in Perth it was "a very good proposal".
"The conclusion will be that by and large, we have got it right. But it is high time we have a careful review of our financial system."
"Wallis is a long time ago now, and we've had very big changes both domestically and internationally," he said.
Professor Harper nominated the former Reserve Bank Governor Bernie Fraser, and the former Governor Ian Macfarlane as suitable names to chair a new inquiry, noting that each understood the financial system well.
Every one of the big four banks yesterday refused to comment on the idea of an inquiry or a people's bank, putting forward instead the head of the Bankers Association David Bell to say they "wouldn't shy away from an inquiry" but that a people's bank could "erode competition".
Published in today's SMH and Age
Photo: Sun Herlad
