Bank bashing is a feature of every Federal Election. But we don’t need a politically-motivated Royal Commission into our banking system — it has far more powerful regulators as it stands, John Hewson writes.
How do you know that there is a Federal election just around the corner? Our politicians start bank bashing!
It always happens.
The current version was kicked off by Turnbull’s comments at a recent Westpac function concerning bank culture and certain banking abuses. This was seized on immediately by the Opposition, recognising an opportunity to politically “wedge” Turnbull, by promising to launch a Royal Commission into banking if they are elected to government.
Not surprisingly, several Government members, mostly from the bush, as they always do, soon seized the opportunity to again kick the banks, and so made statements supporting Labor’s position.
It’s an easy issue to run as very few Australians “like” their bank, and most can relate almost endless war stories documenting personal experiences of neglect, abuse, and generally a sense of having been ripped off.
People are also offended by the bank boasting, quarter-by-quarter, about what seems to many to be an almost endless steam of “obscene” or excessive profits, that many feel confirms their sense of being swindled.
There are also the conspicuous failures that suggest the paucity of banking practices and ethics – failures such as financial planning scandals, excessive or unjustified fees and charges, inadequate insurance payouts, excessive executive and board remuneration, interest rate fixing and manipulation, and a general lack of transparency and accountability.
Banks have also been seen to be too big to allow to fail, as demonstrated at the time of the GFC, when they were extended liquidity support, deposit guarantees, and were able to borrow with the benefit of our Government’s AAA credit rating, rather than their own.
This too grates with many, who question why other industries such as cars and steel aren’t also worthy of sustained government support.
The bottom line is that our banks are in an extremely privileged position in our society, and that many feel they abuse, rather than fully recognise and satisfy their economic and social responsibilities.
Some have argued therefore that banks should be subjected to a super profits tax, to claw back some of the excessive profits that they generate by exploiting this privilege, to the benefit of the broader Australian community.
Clearly, the banking industry needs to clean up its act, by improving its culture and ethics, by improving its governance, remuneration and incentive structures, all with much more transparency.
You don’t need a Royal Commission to achieve this – indeed, the recent and very thorough Murray Inquiry into the financial system made many of the relevant recommendations, as have a host of parliamentary and other inquiries.
It is claimed that a Royal Commission would provide a mechanism to give voice to community concerns about the banks, through very public hearings. But, the community is already able to go further, and to take specific actions, as evidenced by a number of class actions launched against the banks, and other legal actions launched by the authorities, as with the current ASIC case against Westpac and the ANZ for interest rate fixing.
Existing regulatory powers through ASIC and APRA already far exceed the powers of a Royal Commission, most importantly in being able to initiate prosecutions, and to impose a range of other penalties. In contrast, a Royal Commission can only recommend.
The key issues then are to ensure that these authorities are adequately empowered and funded, and are sufficiently transparent and accountable in their activities. A Standing Parliamentary Committee for such oversight and review is also fundamentally important in this respect.
There have been several genuine events in recent years that would have warranted a Royal Commission, such as the AWB scandal over bribes paid to the regime of Iraq’s Saddam Hussein, and the Reserve Bank’s Securency bribery scandal, where fundamentally important issues were simply swept under the carpet.
However, a politically motivated witch-hunt into our banking system would be quite counterproductive to our national interests, and may even risk the very stability of the system it is seeking to reform.