banking overhaul
This policy paper builds upon two foundational papers advocating for structural changes to Australia's monetary and economic systems:
https://www.theradicalagenda.au/the-agenda-for-australia/the-case-for-a-targeted-spending-account
https://www.theradicalagenda.au/the-agenda-for-australia/the-case-for-a-dual-equity-market
Re-Engineering Macroeconomics: Restoring Pure Intermediary Banking Model
To build a sovereign, high-growth economy that permanently tames demand-pull inflation while providing debt-free liquidity to workers, policy cannot rely solely on central bank interest-rate adjustments or blunt taxation. Under a framework powered by Modern Monetary Theory (MMT) and Targeted Spending Accounts (TSAs), controlling broad money (M3) requires restructuring the banking system into pure-intermediary model.
1. Pure-Intermediary Commercial Banking: Ending Money Creation at Will
The primary driver of systemic financial instability is the ability of private commercial banks to create debt-money out of thin air to fund asset speculation most notably residential land inflation. Converting existing commercial banks into ASSE-listed pure intermediaries permanently strips away this credit-creation privilege without triggering a credit crunch.
Banks satisfy mandatory ASSE entry conditions by issuing direct equity to wipe out all outstanding corporate debt including interbank liabilities and private bonds and locking up five years of operational reserves in static cash vaults. In return, commercial banks operate completely exempt from federal corporate income, payroll, and capital gains taxes.
Because the entity itself pays zero federal corporate tax, dividend distributions paid out to individual bank shareholders are treated as unfranked, direct personal income. Shareholders declare these dividends on their tax returns and pay their standard personal marginal tax rates.
Equity is held by retail investors and non-bank wholesale institutions, while private commercial banks are legally barred from holding shares in one another to prevent financial cartelization.
2. Monetary Mechanics and Spread Architecture
Pure intermediary banks cannot mint loans into existence. They must return to the foundational model of banking: lending only pre-existing, circulating currency collected from term deposits. Because worker TSAs inject significant debt-free capital annually into the domestic economy, banks operate with deep liquidity reserves.
Deposit yields are set legally at CPI + 1% with a floor rate of 1.0%, guaranteeing depositors a real return that permanently preserves household purchasing power against inflation. Lending rates are set legally at CPI + 4% with a floor rate of 4.0%, offering productive business borrowers stable, predictable terms detached from central bank rate shocks.
Under this architecture, the sector operates on an unalterable 3.0% Net Interest Margin (NIM). Free from federal taxes and speculative trading losses, this clean 3.0% spread covers operational overhead and delivers transparent, unencumbered dividend yields directly to private shareholders and untaxed retail super funds.
3. Household Debt Destruction: The Structural Anti-Inflation Circuit Breaker
To prevent state-injected liquidity from triggering demand-pull inflation in consumer markets or asset bubbles, the model enforces a strict financial gateway at the household level.
When the Reserve Bank of Australia mints $100,000 per year into worker TSAs, these funds are initially locked and restricted from discretionary spending or non-essential investments. A mandatory liability paydown rule dictates that 100% of a worker’s annual TSA allocation must be routed toward debt reduction until all personal private debt including mortgages, personal credit, and auto loans is reduced to $0
Citizens cannot deposit TSA cash into bank term deposits to earn the guaranteed CPI + 1% yield, purchase quarterly ASSE equity releases, or spend on consumer goods until their personal balance sheet is completely debt-free. Because wiping out existing household mortgage debt takes several years per household, the multi-trillion-dollar liquidity injection enters consumer markets in a controlled, staggered fashion, completely neutralizing demand-pull inflation risks.
4. Structural Shock to Capital Market
To list on the Australian Sovereign Stock Exchange (ASSE) and claim federal tax immunity, existing banks are forced to undergo a massive balance sheet restructuring:
Total Elimination of Interbank Liabilities and Bonds: Banks must issue direct equity to completely pay off or convert all existing corporate debt, senior bonds, and interbank obligations.
Collapse of the Interbank Lending Market: Because banks can no longer create loans at will, they no longer face the daily risk of reserve shortfalls caused by uncoordinated credit expansion. The wholesale interbank borrowing market and the interest-rate trading desks attached to it essentially ceases to exist.
5-Year Cash Lockups: Banks must lock away five years of operational reserves in static cash vaults, transforming them from leveraged, highly sensitive financial institutions into hyper-capitalized, fail-safe public utilities.
5. Sourcing Capital: From Money Creators to Deposit Harvesters
Under this model, banks can no longer issue a loan by simply writing a new deposit into existence. Every dollar lent out must pre-exist as a real dollar saved by a depositor:
The TSA Liquidity Surge: Rather than competing fiercely for scarce interbank reserves, banks become flooded with debt-free liquidity as millions of Australian workers receive $100,000 annually into their Targeted Spending Accounts (TSAs).
Guaranteed Deposit Attractiveness: With term deposits legally mandated to yield CPI + 1% citizens who have cleared their personal debts naturally flood the pure-intermediary banks with term deposits to preserve their purchasing power.
Zero Duration Mismatch: Banks only lend out of actual term deposits. A 5-year business loan will be funded by locked 5-year term deposits, eliminating the dangerous traditional mismatch of funding long-term assets with short-term, "at-call" retail deposits.
6. Operational and Profit Model: From Speculative Trading to Fixed Utility
The day-to-day business model of commercial banking shifts from complex financial engineering to straightforward administrative management:
Fixed 3.0% Spread (NIM): Banks no longer spend resources guessing central bank interest rate hikes or managing complex yield curves. With savings rates fixed at CPI + 1% and lending rates fixed at CPI + 4%, the bank operates on a guaranteed, unalterable 3.0% Net Interest Margin.
End of Asset-Speculation Lending: Because banks are state-managed and cannot create credit out of thin air, they can no longer fuel residential land bubbles or leveraged corporate buyouts. Bank lending is redirected purely toward productive business investment and capital expenditures.
Streamlined Overhead: Exempt from federal corporate income tax, payroll tax, and capital gains tax—and freed from complex bond-issuance and derivatives-hedging operations—bank operational overhead shrinks dramatically.
7. Shareholder and Investor Dynamics
Taxation Moved to the Shareholder: While the bank itself pays 0% federal tax, all dividend distributions are passed to shareholders as unfranked, personal taxable income.
Attracting Superannuation Funds: Retail superannuation funds, which operate under untaxed or low-tax structures, become the primary equity holders of these banks. They receive a clean, highly stable, utility-like dividend yield backed by a 3% spread on productive national lending.
No Financial Cartels: Because commercial banks are legally barred from holding shares in one another, cross-institutional ownership and systemic "too-big-to-fail" contagion risks are completely eradicated.
8. Market Exit via Asset-Only Transfers: Managed Consolidation Without Systemic Instability
Under our pure-intermediary framework, market exit is strictly controlled to guarantee that no bank collapse ever threatens worker savings or triggers financial contagion. When a smaller or regional bank suffers from operational inefficiency, thin margins, or an inability to cover its overhead under the fixed 3.0% Net Interest Margin (NIM) spread, it cannot be acquired through standard corporate stock buyouts or risky leveraged mergers.
Instead, the framework establishes a single, state-mandated pathway for a struggling bank to exit the market: "The Asset-Only Portfolio Transfer"
This process guarantees that market consolidation naturally strengthens systemic stability by transferring customer relationships into the hands of highly efficient, state-managed major banks, while returning pure operational capital to private investors.
The Mechanics of the Exit: A Working Case Study
To understand how this single-exit model operates, consider a struggling intermediary bank that decides to wind up its operations and sell its portfolio to a major competitor. At the time of its exit decision, the bank holds:
$400 Billion in active housing and business loans (Assets)
$100 Billion in term deposits (Liabilities)
$10 Billion in static, 5-year operational cash reserves (Shareholder Equity)
A - Portfolio Transfer and Net Valuation
Because commercial banks are legally forbidden from holding stock in one another, the acquiring major bank buys only the underlying financial assets and deposit contracts not the selling entity's corporate shell.
In this structure, the struggling intermediary bank sits with $400 Billion in loans and $10 Billion in cash reserves as assets against its $100 Billion in term deposit liabilities. During the portfolio transfer, the acquiring major bank receives the $400 Billion loan portfolio and assumes the $100 Billion in deposit liabilities directly onto its balance sheet.
The transaction value paid to the seller is calculated from the net portfolio balance:
Net Purchase Price = (Loan Assets $400B) - (Deposit Liabilities $100B) = 300 Billion dollars
The buying major bank pays $300 Billion in liquid cash directly to the selling bank, seamlessly absorbing the $100 Billion in customer term deposits and taking over the administration of the $400 Billion incoming loan payments. Customer deposits are untouched, interest yields remain legally protected, and banking services continue without interruption.
B - Isolation and Liquidation of Operational Cash Reserves
The selling bank's $10 Billion cash reserve was set aside specifically to cover 5 years of its own operational overhead and R&D. Because the buying bank already maintains its own mandatory 5-year operational cash reserve, it has no use for the seller's operational funds.
The cash reserve remains entirely with the selling bank throughout the transaction.
C - Full Shareholder Payout and License Surrender
With its loan portfolio sold and its deposit liabilities fully transferred, the selling bank converts into a clean, zero-liability cash shell holding $310 Billion ($300 Billion net purchase proceeds + $10 Billion retained operational reserve).
All of these liquid funds are directed into the selling bank's liquidation vault. From here, a 100% final liquidation dividend is executed, distributing the full $310 Billion directly to retail and wholesale shareholders.
After paying minor corporate wind-down costs, the entity hands over the remaining capital balance to its retail and wholesale shareholders. Having fulfilled all obligations to the public, the bank surrenders its commercial banking license to the Australian Prudential Regulation Authority (APRA) and formally dissolves.
9. Why Structural Consolidation Enforces Total Systemic Stability
By funneling all bank exits through this single asset-transfer mechanism, the monetary model achieves three vital macroeconomic goals:
Zero Deposit Risk: Term deposits are never frozen, haircut, or written off. They simply migrate to a larger, more efficient balance sheet.
Capital Efficiency: Unspent operational reserves are not consumed by administrative bankruptcy proceedings; they are returned directly to private investors and retail super funds to be redeployed across the productive economy.
Controlled Utility Consolidation: As smaller, high-cost banks naturally exit, the sector consolidates into a lean group of highly capitalized major banks. Because these remaining major banks operate under fixed legal spreads (CPI + 1% deposits / CPI + 4% loans), consolidation cannot lead to predatory pricing and instead to higher operational efficiency and total financial stability.