EXECUTIVE SUMMARY
Banks and community obligations: What are the obligations of Australian banks? In addition to the duties they have to their shareholders, do they also have a separate responsibility to the community? Should they consider the needs of the poor, the elderly and those in rural and regional areas who, for one reason or another, may have difficulty accessing banking services? Is a balance to be struck between commercial and community objectives? (page 1)

Banking as an essential service: Many argue that banking should be viewed as an essential service, akin to clean water, electricity and telecommunications. For example, the Local Government and Shires Association has maintained that the banks should be treated as public utilities, stating: 'It is not sufficient to argue that banks are now like any other competitive business whose primary objective is to maximise the return to the shareholder. The major banks, because of their key role in the financial system have a utility function that confers responsibilities beyond that of ordinary businesses'. The Australian Bankers' Association disagreed, arguing 'If it is considered appropriate for rural customers to be provided with transaction services that are not otherwise commercially viable, the cost of this should be met by the Government from the general budget'. (pages 3-5)

Background facts and figures: In Australia, as elsewhere, these arguments are posed against a background of rapid change in the banking industry, at a time of bank branch closures in rural, regional and metropolitan areas. For NSW, the statistics show that 331 metropolitan bank branches were closed between 1993 and 1999; and 258 were closed in regional and rural NSW in the same period. The breakdown for NSW for the four major banks over the same period is as follows

ANZ Bank 132 (from 352 to 220) - 34 per cent closure rate
Commonwealth Bank 123 (from 518 to 395) - 23.7 per cent closure rate
National Australia Bank 44 (from 390 to 346) - 11 per cent closure rate
Westpac 122 (from 465 to 343) - 26 per cent closure rate
Research conducted by the NSW Department of Fair Trading suggests that, between 1994 and 1997, 124 branches outside Sydney had closed, affecting 106 communities and leaving 36 without a bank branch. The National Farmers' Federation has estimated that there are around 600 communities in rural and regional Australia without access to a financial institution. It seems that, Australia-wide, towns with populations of less than 1000 account for over 50 per cent of towns where banks have closed their only branch in town. Towns with populations of less than 600 account for nearly 44 per cent. (pages 5-8)

Three questions: Statistics of this kind must be interpreted in a wider context which, of necessity, gives rise to at least three key questions. First, what are the forces driving these changes? Secondly, what impact does bank closure have on individuals, businesses and communities? Thirdly, are other services/institutions filling the gaps left by the banks in some or all of the communities which have been left without traditional banking services? (page 9)

Alternative means of providing banking services: It is generally recognised that, in many cases, alternative means of providing banking services - agencies, ATMs, the Internet etc - can alleviate some of the problems where traditional banking services have been cut. It is also recognised that changes to face-to-face banking are inevitable in the current climate and that innovative approaches must be embraced. However, it is also argued that, in all probability, electronic banking cannot meet 'all the banking needs of most people', with the Australian Consumers' Association noting that 'Even enthusiastic users of electronic banking generally will want to visit branches for particular banking needs.' It also recognised that the elderly and disabled, along with disadvantaged groups generally, can face special difficulties in adapting to the revolution in banking services. (pages 13-15)

Regional transaction centres: At the federal level, one governmental response has been the plan to open regional transaction centres in up to 500 small rural towns. The program was launched on 11 March 1999, with the first centre opening in the NSW town of Eugowra in October 1999. (pages 15-16)

Governmental inquiries: The provision of banking services has been the subject of several governmental inquiries over the past few years, including a March 1999 report from the House of Representatives Standing Committee on Economics, Finance and Public Administration, Regional Banking Services: Money Too Far Away. In June 1999, the NSW Department of Fair Trading recommended the adoption of a system of community banking ratings similar to that operating in the USA. (pages 17-22)

The US Community Reinvestment Act: In Australia and elsewhere, a focus of the debate has been on this 1997 US Act which is intended to encourage banks to help meet the credit needs of the entire community, including low and moderate-income households. Ratings are given to the banks for compliance or non-compliance with the following performance tests: the lending test; the investment test; and the service test. The Act's 'bite' is found in the fact that a proposed bank merger or acquisition can be challenged if the bank in question has a low community rating. Evaluating the operation of the Act is difficult. Some are sceptical, seeing it as a burden on the banking industry. For many, however, it is an innovative law which may be an important model for other jurisdictions, including the UK and Canada. (pages 22-35) Some US States also require banks to offer a no-frills account, thereby making services affordable for low and fixed-income earners. (page 35)

Banks and community obligations in Canada: Various governmental inquiries have reported on the question of banking services in recent years, culminating in the release of a Department of Finance White Paper, Reforming Canada's Financial Services Sector, in June 1999. This would require low-cost accounts, branch closure consultation and the publication of Public Accountability Statements. However, the White Paper did not recommend the introduction of a US community reinvestment model. (pages 38-44)

Issues: Some of the main issues arising from the current debate are: should legislation be introduced to establish mandatory minimum service standards? should such legislation require banks to reinvest in the community, especially in support of the most disadvantaged? should banks be made to offer low-cost bank accounts as a way of making essential banking services available to all? (page 45)