Local councils in NSW look like adopting a sensible response approach to bank closures in their districts. Hitherto, councils and others in the regional, and now suburban, Australia have bemoaned bank closures and demanded they be stopped. But it was an unheard cry, and rightly so. Why should the banks run unprofitable branches in regional towns and the suburbs? The banks are not charities. Not unexpectedly, the banks have ignored pleas to keep branches open.
Now three Sydney councils have threatened to withdraw $100 million in business with the Commonwealth Bank if they close local branches. It is not so much a statement of blackmail, as a statement of condition of business. If you want the business of this council you must have a local branch is the message. Banks, of course, like big customers with large sums of money be transferred in each transaction. Now when they look at the profitability of a suburban branch they have to look not only at small local customers, but large local customers in the form of councils.
In short, the councils are using the very market forces and economic pressure that the banks have been using in closing small branches.
None the less, there is some irony in the statement from the president of the NSW Local Government Association, Peter Woods, saying he would combine with other councils to “”start taking on the financial institutions . . . if they want to continue with their economic rationalist stupidity”.
Mr Woods is responding exactly according to economic rationalist theory. He is using market pressure to get a result. And good luck to him. It may be that councils and businesses in regional and suburban Australia find efficient and competitive ways to take on the banks to get a better result for their people and bust open the banking oligopoly. That is economic rationalism.