The Money Men Chris Bowen (the red fox clan .txt) 📖

and a charter to fulfil. The objectionable part of the Act as far as Menzies and Fadden were concerned, however, was the creation of the powerful post of governor without the supervision of an independent board. Menzies in particular believed that a Commonwealth Bank board drawn from a cross-section of industry should be an important plank in the constitution of the bank.

Accordingly, in 1951, Fadden introduced legislation for a Commonwealth Bank board to be established, with the governor being the ex-officio chairman. Here, Fadden was avoiding the mistake of his Country Party predecessor Page, who had also sponsored legislation creating such a board in 1924, but who had allowed the board to choose its own chairman, weakening the post of governor and handing over the power to appoint the chairman, properly held by the government, to the board. Fadden’s legislation was highly controversial. Chifley, now leader of the opposition, had been scarred by the Depression-era experience of a Commonwealth Bank board drawn from the upper echelons of finance and industry refusing to cooperate with a Labor government on necessary measures to avoid mass unemployment. He felt so strongly about the need to avoid a repeat of this situation that he indicated he would resign the Labor leadership if the national executive of the party refused to back his judgement that the legislation be opposed. When the legislation was originally rejected by the Senate, Menzies and Fadden determined to press on and reintroduce it, planning to use its repeated rejection as a trigger for a double-dissolution election if necessary. Both the Liberals and the opposition judged that Menzies would win an election that was called early, but that he might struggle if the parliament went full term because of the growing signs of inflation in the economy and the measures that would prove necessary to bring that inflation under check.

Labor wanted to avoid triggering an early double-dissolution election by rejecting the Bill outright, and instead decided to refer it to a long Senate committee inquiry, thus blocking the government from implementing its agenda. But Menzies told governor-general William McKell that he believed the deferral was a rejection, and McKell agreed, authorising an election. The subsequent 1951 poll saw the Menzies government returned and also win a majority in the Senate for the first time. The government used this majority to pass its Commonwealth Bank Bill and establish a board to supervise the work of the governor.

While Chifley’s reluctance to agree to establish a board for the bank was understandable, it is fair to say that Fadden’s model has stood the test of time. The objectionable approach of the Commonwealth Bank board in the Depression had more to do with its stale orthodoxy, especially as represented by its chairman, Sir Robert Gibson, than with any inherent flaws in the idea of having the board approve the recommendations of the governor. In fact, the system established by Fadden has proven remarkably resilient, resisting the tides of economic change and changes of government for seventy years. Fadden’s model of a governor, deputy governor and six others was transferred to the new Reserve Bank of Australia (RBA) when it was established in 1960 and retained in its entirety until 1992, when a second deputy governor position was established with responsibility for prudential supervision of financial institutions. In 1998, the second deputy governor position was abolished with the transfer of the prudential supervision function to the new Australian Prudential Regulation Authority (APRA), and the RBA’s governance arrangements returned to Fadden’s old model.

Fadden’s predilections as leader of the Country Party, as well as the importance of primary production in the economy at the time, were reflected by the heavy representation of agricultural interests on the board appointed by him. Among them were a conservative member of the Queensland Legislative Assembly who had extensive grazing interests, the general manager of the pastoral company Elders, the chairman of the Westralian Farmers’ Co-operative (now known as Wesfarmers) and the chairman of the Rice Equalisation Association. Beginning a tradition that has lasted to this day, Fadden appointed one professional economist, Sir Leslie Melville, to the board. In a move that was not followed by his successors, Fadden also appointed one board member from each state. (In recent times, the board has been much more heavily dominated by business figures from Sydney and Melbourne.)

Fadden’s 1951 Bill did not contemplate transferring the Commonwealth Bank’s central banking responsibilities into a new reserve bank. The conservative parties had fiercely resisted treasurer Theodore’s attempt to do this in 1931 and were comfortable with the status quo of the Commonwealth Bank fulfilling both the savings bank and central bank roles. They were fortified in these views by the support of Nugget Coombs, who while happily fulfilling the role of central bank governor and that of savings bank chief executive, advised the government there was no need to structurally separate the bank into two entities. Fadden told the House of Representatives that the skills and experience that the Commonwealth Bank’s senior management got in running a savings bank were useful in fulfilling their role as central bankers.

Fadden’s support for a unitary structure came under pressure during the 1950s due to a sustained campaign by Australia’s private banks to create a new, independent reserve bank. Under Coombs’ stewardship, the Commonwealth Bank was aggressively seeking depositors’ business, causing considerable tension among the private banks. Their managing directors complained to Fadden that they could not be expected to trust the central bank and share confidential information with its management, if that bank was also a competitor. This was a very reasonable argument for the private banks to make, as was the fact that the Commonwealth Bank, as a government-owned central bank, did not pay state or federal tax, giving it a significant advantage as a competitor.25 The banks’ campaign became more coordinated with the formation of the Australian Bankers Association (ABA) in 1954, which partly had its genesis in the realisation by the banks that they needed to take their campaign