From the back page of the CEC's latest flyer, Australia sleepwalking to 'economic Armageddon' Implementing Glass-Steagall in Australia would break up the Big Four banks, Macquarie Bank, and any other banks that mix commercial banking with other financial services. To ensure that this is a smooth process, the government would give the banks one or two years to untangle their different banking functions. During this period, the banks would operate under government protection, which would continue for the commercial banks after the separation. To guard against speculation, and the risk of capital flight, the government would impose capital controls. Unscrupulous bank officials would then be unable to squirrel funds, which rightly belong to the commercial banking side of their operations, outside of the country. Breaking up Australia’s Big Four banks would not be an overly complicated process—except for their derivatives trading. Each bank has commercial, investment, wealth management, insurance and stock broking divisions that are already accounted for separately, which can be spun off into stand-alone businesses that are either sold or floated on the stock market. Untangling the derivatives is another matter. The proportion of derivatives contracts that are underwritten by the deposit base of the commercial side of the bank will have to be “netted out” and cancelled. The investment banking side will only be permitted to retain derivatives contracts that are not associated with the commercial banking side, or do not have other commercial banks as counterparties. There will also be restrictions on derivatives sales to insurance funds and wealth management companies. Blocked from doing derivatives deals with commercial banks, much of the investment banking derivatives speculation bubble will wither and die. When the separation is complete, commercial banks will be stand-alone businesses that have no contact with investment banks whatsoever—no cross-ownership, no cross-directorships. Commercial banks will only take deposits and make loans: to home buyers, to small and medium businesses, and to farmers. They will not be allowed to engage in securitisation, by which they bundle up their home loans and on-sell them to investment banks. This will stop commercial banks from speculating in the property market, and make more credit available for lending to small businesses and farmers etc. that are the productive base of the economy and provide the majority of the jobs. Presently, without Glass-Steagall, these sectors are being starved of credit while most bank lending is going into the housing bubble. Investment banks will be left to succeed or fail on their own. People who do business with investment banks will know there will be no possibility of government bailouts, and only invest money they can afford to lose. In turn, this will encourage investment banks away from reckless speculation, as they will need to demonstrate their deals are sound if they are to attract investors. You can download the flyer here: http://cecaust.com.au/pubs/pdfs/flyer/20170407_Economic_Armegeddon.pdf