Commonwealth Bank CEO Ian Narev
No one likes the big banks so it’s easy to make the case for a royal commission.
But with so many scandals, it’s hard to know where an inquiry would begin … and end.
As Nationals Senator Barry O’Sullivan drafts a private member’s bill for a commission of inquiry into the sector, here’s a look at some of the things an inquiry might actually cover.
Bad apples or a rotting orchard?
The banks have been slammed over the past five years over rolling scandals that they keep promising to fix but never stop. While this has been the trigger for calls for a royal commission, it might not necessarily be the focus. The politicians calling for a royal commission don’t want to pick over old scandals, they want to uncover new ones. The terms of reference are likely to reflect this. While banks have been keen to take the bad apple defence, an inquiry will likely look at the systems that encourage workers to bend and break the rules. These include cross-selling and bonuses paid to staff.
Too big to fail, too big to regulate … maybe just too big
Australia’s big banks are bigger, more complex and more profitable than ever before. This is thanks to an acquisition spree in the 1990s and 2000s that saw the big four suck up their smaller competitors. They have gone from simply giving out loans, cheque books and credit cards to dominating every aspect of finance, from insurance and superannuation to global share trading.
Now, even the banks themselves admit they have gotten too big, with many choosing to flog off troubled insurance and wealth divisions. But this untangling will be messy and raises more questions about accountability for past wrongdoing.
An inquiry would likely look at ways to break up the banks further, not only to improve competition but to make them less complex and easier to govern.
UTS professor of management Thomas Clarke says the concentration, scale and integration of Australia’s banks is of far greater concern than any scandal.
“Financial institutions are taking a disproportionate share of the profits of the economy, and the productivity of the economy is weaker as a result,” he says. “Finance needs to be put in its place rather than being the driver of so much of our economy and society.”
Greater supervision needed
Australia’s corporate cops have been caught asleep at the wheel far too often, and previous inquiries haven’t seemed to make a difference. After the Commonwealth Bank financial planning scandal broke in 2013, the Senate launched an inquiry – not into the CBA but into the performance of the corporate regulator, the Australian Securities and Investments Commission.
What it uncovered was a regulator that lacked scepticism and “allowed itself to be lulled into complacency” by the banks. Indeed, ASIC’s response and the bank’s behaviour was so appalling, it said, that it warranted a royal commission.
More than four years on and ASIC has found itself in the dark once again, this time over the CBA money laundering allegations that happened more than two years ago.
Australia can’t afford to have such highly complex, super-sized banks be governed by a weak and diminished regulator. Therefore the role of ASIC and its banking counterpart, the Australian Prudential Regulation Authority (APRA), will no doubt come under more scrutiny – a tough job for incoming ASIC chairman James Shipton.
No protections for small business
If you think mum and dads have been hit hard by banking misconduct, spare a thought for small businesses, who have next to no protections against bank wrongdoing compared to ordinary consumers. It’s because of this gaping hole in regulation that small businesses, including farmers, have been amongst the hardest hit by the scandals of recent years.
While a recent small business inquiry has sparked some changes in this area, a royal commission or commission of inquiry would address past cases of wrongdoing that have slipped through the cracks.
But Australian Small Business and Family Enterprise Ombudsman Kate Carnell says any inquiry would only prompt legislative change, and not bring about compensation.
“These are people who have been through extraordinary amounts of problems, personal and private. They have been seriously messed around [by the banks],” she says.
“Nobody knows how many cases there might be, but it is important for people involved to know that a inquiry can only make recommendations and cannot give compensation.”
A number of years ago, I was singing at a function attended by one Tony Abbott. An audience member requested Graeme Connors’s Let the Canefields Burn. It has a line, saying “let the politicians and the bankers in the city look up and wonder at the glow in the sky”. Abbott was offended and come up afterwards saying it was unfair to pollies and bankers. I live in a farming community. I told him I was not criticising anyone specifically and that I had no wish to criticise any of the pollies present, but that the banks had behaved disgracefully in the recent past in my area. He maintained they had not and I enquired how he would know. Apparently some relative worked for the chief money laundering bank back then. He was talking garbage then and his ilk in the house are still talking it.
“I would be staggered if the Coalition proposes a bank royal commission, that is rank socialism,” Mr Howard told Sky News in an interview to mark the 10 year anniversary of his government’s 2007 defeat.
http://www.theage.com.au/federal-politics/political-news/malcolm-turnbull-derailed-by-cabinet-leaks-and-nationals-rebellion-over-banks-20171123-gzrgsb.html
How is it socialism to investigate the banks for unethical or illegal behaviour?
Anything that is inimical to capital is socialism according to the rabid Rite.
It should be a full Royal Commission…best implemented under Labor, because the terms would be set to uncover much more than a ‘watered down’ commission of inquiry under the current government.
Boyce was on The Dum tonight – echoing the same cock-crow that ‘a RC will do nothing, will take too long, that they can only advise’ codswallop : apparently opening up the sausage factory, to let everyone see what they make and how, in such a culture is not worth seeing?
The fact that they donate so much to the Limited News Party (in anticipation of services/protection rendered?) wouldn’t be a factor either?
That’s actually a good start. Although there would be much schadenfreude attached to watching the bank executives incriminate themselves, repeatedly, and as much as I would like to see it, there are good chances it will get bogged down in the vast amounts and examples of unethical and profligate activities.
Better still, look at the bonuses, the commissions, the KPI’s attached to the bonuses, the effect that the banking system has on the rest of the economy – essentially every dollar of banking profit is a tax on householders and business, quite literally, for the pleasure of moving money around to where it is being productively used.
And then look at the systemic risks (size and activities of banks) and the regulatory regime. Banks should be split into the retail banking (deposits, loans and credit) and sharper end of bank practices, and only the retail banking covered by an implicit govt guarantee.
The regulators have to be real regulators, and the idiot idea of getting in bank employees on secondments to the regulators has to be ended. Actually, that applies to all regulators.
And then get the Researve Bank into the retail banking space, a la Nicholas Gruen’s champion idea.
And then appoint Nick Gruen as the Head of the Reserve Bank.
Wot Brekky sed.