Push for a Reserve Bank rural lending mandate slammed

The latest effort by minor party politicians to secure a populist mandate for the Reserve Bank of Australia to finance the rural sector is receiving the expected push back from industry and government.

Senators Nick Xenophon and John Madigan are the latest proponents of the Reserve Bank Amendment (Australian Reconstruction and Development Board) Bill, a proposal squashed last year in the House of Representatives.

In a submission to the Economic Legislation Committee, the RBA made it clear that it did not support the bill, maintaining that a commercial lending function was not appropriate for a central bank.

"The Australian banking system has sufficient capacity and expertise to service the financing needs of rural producers at a price that is appropriately adjusted for the risks that the lenders assume," the RBA said.

The RBA added that "the private financial system can satisfy the normal commercial demand for finance by the rural sector, and the provision of finance from this source dwarfs any public provision under current arrangement."

The RBA also stated it did not "possess the requisite expertise in regular commercial lending."

Moreover, it said, "the addition of a third Board to the RBA's governance structure would risk blurring of responsibilities and confusion over the RBA's policy objectives."

The Australian Bankers Association also questioned the concept.

The ABA said the Rural Adjustment Act 1992 "currently exists for the specific purposes of enabling the Australian Government to provide directly or indirectly, grants and loans to farmers, for purposes related to rural adjustment."

The ABA also disputed there was a rural debt crisis: "The banking sector has a strong record in recent times of supporting the rural sector through the 'decade of drought' on the East Coast and more recently through a prolonged drought period in the West Coast grains industry."

The Treasury said direct lending via a government owned development board was likely to reduce competition and innovation across the economy by crowding out private providers of credit.