The Wallis Report: Functionality and the Nature of Banking.

The article presents information on the report of the Australian Financial System Inquiry, which was established in May 1996, under the chairmanship of Stan Wallis, in relation to functionality and the nature of banking. The Wallis Committee of Inquiry into the Financial System faced the unenviable task of investigating and delivering recommendations for restructuring the supervision of the Australian financial system within a time frame of less than one year. The task was unenviable because of the complexity of the issues involved, the absence of a generally accepted analytical framework for analysing financial system design, strong vested interests, and the ongoing pace of change in the financial system. In these circumstances, any report is unlikely to find favour with all observers and will attract criticism in abundance. In this article, the authors focus upon some perceived weaknesses in the Wallis Report which, they argue, arise from the lack of a clearly defined analytical framework and use of incompletely defined concepts. Among the issues we identify as inadequately resolved are many of long standing in the analysis of financial systems including the question of whether banks are special, the determinants of the special characteristic of deposits, the sources of financial panics and bank runs, the special nature of the payments system, the measurement of output and cost of financial institutions, and the case for separating banking and commerce.