The New Zealand public is, sadly, all too familiar with the annual hand-wringing that attends the reports of the profits made by our Australian-owned banks; they are only too aware that those billions of dollars of bank profits are expatriated across the Tasman into the pockets of their Australian owners. Such is the level of concern that the Commerce Commission has now been asked to investigate.

Some may comfort themselves with the thought that - for the billions we pay out - we are at least getting something of value in return. The price may be a bit high, they may think, but we are at least receiving a service that we would not otherwise get. Even that comforting thought, however, does not stand up to scrutiny. The banks do not sell us something of value, as would be the case if they were producing some form of merchandise. If they were selling us a product that we chose to buy from them, we could in the end have no complaint.

But the deal we accept from the Australian banks is not a two-way deal. The bargain we strike with them has its origins, not in a product they bring to our market-place, but in a concession that we make available to them - a concession available only to a privileged few and that allows them to trade as banks and provide us with a service, whose provision is the key to unlocking vast sums in profit.

The concession we grant to them is the right to operate as banks in our country. That concession is in reality a licence almost literally to print money. It means that they are able to set up business as banks and then to charge us interest on the money they "lend" to us. That money arises by virtue of the advances they make to us - loans they create with the stroke of a pen or, more probably these days, the touch of a computer keyboard.

The interest they charge us on these loans is the source of their massive profits. The loans cost them next to nothing; their costs are only those involved in employing staff and maintaining premises - though those premises, in our smaller towns, are becoming few and far between - and they charge us fees to cover those expenses. The reason we do not see this for what it is - an exercise in charging us for a concession we give to them - is that most people do not understand where most of the money in our economy actually comes from.

In that, they are not alone; even the one-time Governor of our Reserve Bank, Don Brash, disputed the reality that most of the money in our economy is actually created by the banks. Even when an article in the Bank of England Quarterly Bulletin spelt out exactly how this happens, in all developed economies, he refused to open his eyes, apparently preferring to believe the fiction that the banks only lend out money that is actually deposited with them by savers.

Just to spell it out: when the bank "lends" us money (usually on mortgage or overdraft facility), it does not actually put any money into our account. It simply makes a book entry that has the effect of increasing our purchasing power (that is, our ability to claim a purchasing power that the bank will recognise and act on).

But that purchasing power, when it is used, and when it buys real goods and services, then goes on to circulate in the pockets of other actors in our economy, and becomes a real factor in influencing key economic indicators - like the size of the money supply, inflation rates, exchange rates, the balance of payments, and so on - which means that the banks play a major role in determining how - and how well - our economy functions.

Extracting Mega-Profits; Handing Over Key Role In How Economy Works

When we allow Australian banks to trade in New Zealand and then to expatriate their profits, we not only, in other words, end up paying billions across the Tasman (allowing the banks to operate like a giant Australian vacuum cleaner, sucking up vast sums from the New Zealand economy and adding them to Australian wealth and purchasing power, rather than our own). We are also handing over to the institutions of another country a decisive role, as major players in our economy, in determining how that economy works. What self-respecting, supposedly independent country would allow that to happen?