John Bannon’s resignation as Premier of South Australia last September can now be seen for what is was: not a man putting party and colleagues before self, but a quick exit before the curtain inevitably came down on a saga on ineptitude. The findings brought down yesterday by the Jacobs Royal Commission into the State Bank of South Australia do not reveal rottenness on the scale of WA Inc, but they reveal some appalling commercial blunders and profound structural weaknesses in the relationship between the bank and the politicians. Put simply, if John Bannon had tried to tough it out in September he would have had to resign yesterday. He earlier resignation will not remove the taint on his colleagues which will have its inevitably effect at the election next year. South Australians will realise, as surely as Victorians did, that financial mismanagement of that scale is inexcusable.
The new Premier, Lynn Arnold, attempted to distance his government from the bank’s $3.15 billion losses. He said the commissioner Samuel Jacobs, QC, had not discovered an SA Inc and that there was no deliberate cover-up by Mr Bannon or any other member of the Government. Even accepting Mr Arnold’s view of commission’s findings, that only shows the Government was not dishonest. It was still incompetent, and incompetent on a grand scale. Mr Arnold attempted to sheet blame on to the bank’s chief executive, Tim Marcus Clarke. This is untenable.
The commissioner found that Mr Bannon had sought to influence the bank into not raising home-loan interest rates before the state elections in 1985 and 1989 and the federal election in 1987. The bank had become the lead financier in a $600 million development in Adelaide’s centre which cold not be judged on commercial grounds. These two findings point to the fundamental difficulty for Mr Bannon and Mr Arnold. If you are going to have a bank which can be persuaded to do uncommercial things with public money on political or public-benefit criteria, then you have supervise it as you would supervise a government department. Further, you have to take responsibility for it _ not just politically, but managerially as well. If not, the appointed managers of the bank can risk public money without any accountability.
The lesson is that governments should get out of commercial operations, like banks. If they want to provide useful public works, like beefing up the centre of Adelaide or relieving struggling home-owners, then it should be done through Appropriation Bills through the Parliament in an open and accountable way.
The damning conclusion is that Mr Bannon, as Treasurer, did not take adequate steps to review his complete support for Mr Marcus Clarke despite the economic decline. Mr Bannon’s excuse was that that was the Reserve Bank’s job. This excuse fails on three counts. First, the Reserve Bank had no power to supervise State Bank; it could only guide. Second, the State bank defied the Reserve’s guidelines anyway, and if Mr Bannon had taken adequate steps that definance and its consequences would have been detected. Third, the State Government never sought to find out the extent and quality of the Reserve’s control until it was too late.
In short, in the late 1980s the Bannon Government sought to have all of the political advantages of having its own bank: no Reserve control and the uncommercial use of funds. It must now pay the price.
Governments everywhere should heed the lesson. Leave banking to bankers. And put socially important infrastructure financing and social welfare payments where the belong: in the State Budget, because that is where they will end up anyway as South Australians will discover to their considerable cost in the next decade.
The only joy in this for Labor is that, like the unemployment figures last week, they vindicate Paul Keating’s decision not to go to an early poll.