MOORE: Prime Minister, you've just been on the phone to the Prime Minister of Japan. This morning, to the British Prime Minister. What's your latest advice? Will the bail out be passed by Congress?
PM: Certainly the determination of America's friends and allies is to speak directly and diplomatically through our ambassadors in Washington to our friends in the United States Congress to try and ensure that this package is passed both by the House and the Senate. Both the attitude of the Government of Japan, the Government of the United Kingdom is that this is actually crucial to the stability of the global financial system, not just the financial system of the United States.
And all of America's friend and allies are of the same mind, and certainly when I spoke with Taro Aso just a short time ago, it was his determination and their message, like ours, will be the same to the Congress.
The administration has put its package forward, it's the Congress that we make this particular argument to.
MOORE: And what is your reading of the current situation with the Congress? Would you bet it will get through?
PM: Look, I'm not a domestic American political analyst, but I would say that there has been a shock to the system in the United States which has come as a result of the failure to pass the President's original package. I would hope, as does my Japanese counterpart and others, that reason will prevail.
But you know, this is not all over red rover. There is a way to go yet, and that's why I believe the responsible course of action is not just to say ‘this is a domestic concern for the Americans', but for America's friends and allies to be in there pitching our argument as well.
It affects here. It affects Tokyo. It affects London.
MOORE: Given how vital it is, what happens if it doesn't get through? Is there a Plan B, or indeed, a Plan C, if it had to be?
PM: Look, I don't think it's productive to speculate on the non-passage of this particular proposal because if that were to arise, we would be back with a further proposal from the administration to the Congress.
There is a fundamental problem that needs to be dealt with and that's the liquidity of the US financial system. That is an immovable object. It's there, it has to be dealt with. In these very difficult circumstances, the Administration has come forward with a responsible package, albeit a controversial one, albeit an expensive one.
So in answer to your question, let us continue our efforts to argue the case with the legislators in the United States who are dealing with US taxpayer dollars, argue the case as effectively as we can. That I believe is the responsible international course of action, quite apart from what we in Australia are doing domestically.
MOORE: Well, liquidity obviously is affecting our own markets severely. You've also just spoken with the Governor of the Reserve Bank, Glenn Stevens. Is he still comfortable about how Australia is responding and how we sit?
PM: Well, our overall response as the Government of Australia is to work in close cooperation, and in response to what the regulators say. And the regulators have stated again yesterday through the Australian Prudential Regulation Authority that our major banks are in good order, their balance sheets are strong, and they are well regulated. That continues to be the case. So, in the midst of what is a genuine global financial crisis, it is important for all Australians to realise that our banks are the best regulated in the world, their balance sheets are in strong order, and we intend to work very closely with our regulators to see Australia through this global financial storm.
MOORE: And that begs the obvious question. If our banks are well capitalised, they're sound, they're well regulated, there is not a problem - why can't they pass on any interest rate cut officially next week in full to mortgage holders?
PM: Well, the Reserve Bank of Australia only last week indicated through the Financial Stability Review that the cost of bank finance has obviously gone up as a result of the global financial crisis. Our banks are not immune from the impacts of this.
Therefore, obviously, if there is an official interest rate cut, we the Australian Government want to see a maximum pass-through of that to consumers.
But we must make sure also it is done in a manner which is consistent with the stability, continued stability, maintaining the stability, of the Australian financial system.
Consumers have just been through ten interest rate rises in a row under the previous Government, and they deserve the maximum pass-through - the maximum pass-through also consistent with maintaining the stability into the future of our system.
MOORE: But why back off the banks? Because as Malcolm Turnbull points out, they are exceptionally profitable. They have massive market share, again they are well capitalised, they are not under any stress - are you running up the white flag, as Malcolm Turnbull would have it?
PM: You know, if there is a choice between following the advice of the Australian regulators on the one hand and playing a game of political populism on the other, what I'm saying to you tonight is that this Government will take the advice of the regulators, and that's -
MOORE: But just last month, Prime Minister, just last month Wayne Swan was unequivocal that any cut would have to be passed on. He didn't mind then being absolutely unequivocal. This time, in just a matter of weeks, the Government appears to be backing off?
PM: Can I say, this global financial crisis has deepened in recent times. And I think all those watching your program and observing developments around the world would agree with that.
You know, this crisis has already claimed the scalps of 25 banks around the world. Now, our responsibility, consistent with the advice which is publicly available through the Reserve Bank's report, the Financial Stability Review last week, has to be mindful of the fact that the cost of bank finance has gone up.
What I want to see as the Prime Minister of the country is an absolute maximum pass-through of any reduction in official interest rates through to consumers. They have been hit with ten interest rate rises in a row under the previous Government, I understand that.
But at the same time, my responsibility is to ensure the continued stability of the Australian financial system. That's what the Government -
MOORE: So if there's no pass-through, that's okay? If there's no pass-through because of the stresses that the banks are under with funding, that's okay?
PM: What I am calling on the banks to do is to provide an absolute maximum pass-through. That I believe is the responsible course of action because -
MOORE: What does that mean? Does that mean half of an official cut, a quarter of an official cut, no pass-through?
PM: Well, I'm entirely attentive to what the regulator said in the report on the stability of the cost of finance as recently as last week. And I go back again to my point, Ali, if the choice is between political populism in the midst of the most acute stage of this crisis on the one hand, as opposed to responsibly responding to the public advice of the regulators, this Government will follow the advice of the regulators even if it is politically unpopular. That I believe is the responsible course of action for this Government to pursue in the midst of a global financial crisis.
MOORE: Prime Minister, still on banks, and just briefly, there is a widespread perception in this country that Australian bank deposits are Government guaranteed, which of course they're not. We are one of only two countries in the OECD that doesn't have an explicit Government guarantee. You're setting up a claim scheme that will basically cover the first $20,000 of any deposit should a bank fail. Is it time for Australia to have an explicit Government guarantee of deposit funds?
PM: The first thing to say in response to that Ali is that we have the best and most tightly regulated banking system in the world. And we should be confident in that fact, and, as I said as of yesterday, the Prudential Regulatory Authority said that our banks, those which represent 85 per cent of the Australian banking system, have strong balance sheets and are weathering this storm particularly well. That I believe is the cornerstone of our position -
MOORE: So that's a no? Sorry Prime Minister, we're running out of time, does that mean no?
PM: We have currently laws that have been around for a long time called ‘depositor first'. After the HIH fiasco, there was a recommendation that we bring in a financial claim scheme. That was five years ago. The previous Government didn't act. We have now got that legislation out there in the community, and we will legislate on that. We believe that currently this system in Australia is the best regulated in the world. Our major banks are in strong working order. Remember, of the 20 AA rated banks around the world, our four major banks are among that 20. And we should have confidence in that fact.
MOORE: Prime Minister, many thanks for talking to us.
PM: Good to be with you.