Defined Terms and Documents  

Prior to the Campbell Report circa early 1980's, the RBA regulated all bank interest rates with an Iron Fist - "... when de-regulation resulted in adverse consequences, re-regulation ensued...."

Below is an extract from the Writer's Discussion Paper 16 Mar 2019:

3.      Prior to the Campbell Report circa early 1980's, the RBA regulated all bank interest rates with an Iron Fist - "... when de-regulation resulted in adverse consequences, re-regulation ensued..."

The Unpleasant Truth About Australian Banking notes:

         "Before 1981, activities of major Australian banks, including the manner they dealt with customers, were subject to detailed regulations imposed by the Federal Government.  Following the 1981 Campbell Committee Report, banking regulations were significantly reduced."

Since 1911 Australia's 'central bank' heavily regulated Australian banks until implementation of the Campbell Committee recommendations in the early '80s.

The Reserve Bank and its then predecessor, the Govt. owned Commonwealth Bank, had increasingly regulated 'with an iron fist in a velvet glove' the commercial banks since 1911.  Historically when de-regulation resulted in adverse consequences, re-regulation by Australia's 'central bank' ensued.

Below is an extract from 'Overview of Financial Services Post-Deregulation' by (Dr) Diana Beal, Director, Centre for Australian Financial Institutions, University of Southern Queensland, Toowoomba, 2002:

"Interest-rate ceilings on deposit accounts restricted the banks’ ability to attract funds particularly during the 1970s when inflation was rampant.  In the June quarter of 1975, inflation rose to 16.9% pa. At the same time, interest payable on amounts held in savings accounts offered by savings banks, for example, was restricted to 3.75% (by RBA regulation) from 1969 to 1980 (Foster, 1996).  In contrast, the interest rates offered by non-bank financial institutions (NBFIs) were not controlled and they were able to pay around 10% on passbook accounts."

"Banks in 1980 still operated in a highly regulated environment which was an artefact of previous economic and social conditions. Indeed, an extensive collection of controls remained from regulation introduced under the National Security Regulations in 1941."

Particulars of deregulations and subsequent re-regulations are well chronicled.

Below are extracts from LOAN RATE STICKINESS: THEORY AND EVIDENCE  -  RBA 1992:

In the case of overdrafts the maximum rate on all overdrafts was set by the Reserve Bank prior to February 1972.

From 1966, when personal loans were introduced, the maximum rate that banks could charge was set by the Reserve Bank. Once again, in April 1985, the controls were removed. At the same time, the maximum interest rate that could be charged on credit cards was deregulated.

Below is an extract from the bottom of page 7 of University of Wollongong 'Economics Working Paper Series 2012':

"Prior to 1985 the maximum rate that could be charged on credit cards had been set at 18 per cent per annum by the Reserve Bank of Australia.  In April 1985, this rate was deregulated."

 

It is all chronicled in Chapter 17 titled Reserve Bank possessed and exercised 'extensive powers' under Section 50 of the Banking Act 1959 to regulate/cap bank deposit/investment interest rates from 1969 to 1980. 

Reserve Bank must regulate interest rates and fees according to User Pays Principle to bring Credit Card Products into line with all other 'goods' and 'services, incl. other banking lending products because Australians with low Financial Literacy Capacity have been exploited by some Credit Card Issuers

 

Chapter 17 notes:

"The Campbell Committee was established in 1979 and reported in 1981.  The recommendations of the inquiry were targeted at ..... the abolition of direct interest rate and portfolio controls on financial institutions at a time when interest rates were at an absolute unprecedented high.  Campbell did not recommend removal of any powers held by the Reserve Bank to regulate interest rates or demand financial information.  The Campbell recommendations were made following an extended period of high interest rates.  High deposit interest rates by NBFIs existent circa 1980 are no longer an impediment to regulating credit card interest rates.  The abovementioned reference to Chapter Nine (in Chapter 15 above): 'Stability and Payments' of the Wallis Enquiry noted "the RBA should retain overall responsibility for the stability of the financial system, the provision of emergency liquidity assistance and for regulating the payments system."

Below is an extract from Consumer Affairs Victoria -  Regulating the cost of credit which evidences that in the past if de-regulation did not achieve the desired results, then re-regulation followed.  But not with regard to re-introducing a max interest rate cap on Credit Card, notwithstanding that the spread between the current Cash Rate of 1.5% (2017) and the Credit Card  Purchase Interest Rate of 20% is 18.5%.  (As at April 2017, the highest Purchase interest rate is 25.9% from "Lombard Visa Card Classic" and the highest Cash Advance interest rate is 29.49% from G.E. Money's "Go Mastercard"):

"The tide of utilitarianism rose slowly, and a lengthy campaign was necessary before the financial deregulation of 1854, which abolished the British interest rate cap.  However, one act of deregulation cannot quell an argument that has been going on for millennia. Over the following century the tide gradually turned towards re-regulation, culminating with detailed requirements imposed on the financial sector (particularly the banks) during and immediately after the Second World War. We now trace the gradual lead-up to this second phase of regulation."