Bank bashing is a national pastime in Australia and the proliferation of parliamentary inquiries into financial services – there have been more than 25 since 2009 – panders to our bloodlust. So, what has Commissioner Kenneth Hayne added to the canon of money merchant morality plays?
The markets tell the story: bank stocks soared to their biggest one-day rise in more than two years while there was a drop of nearly 30 per cent in the share price of major mortgage brokers.
It takes a special sort of genius to inquire into a sector in which the major players have been so sheltered from the keenest winds of competition that they treated their customers with unconcealed contempt, robbing not just the living but the dead, and as Henry Ergas argues, then introduce a recommendation that will punish those agents – mortgage brokers and financial advisers – who injected more competition into the sector than all the government do-gooders combined. The lesson for today’s sermon is that the road to less competition, fewer financial services and higher mortgage rates would be paved with Commissioner Hayne’s good intentions and the villains will literally be laughing all the way to the bank.
Mercifully, the government has been wary of adopting, holus-bolus, the recommendation that borrowers pay the cost of mortgage broker fees which banks would have a much greater capacity to conceal. As for the rest of the recommendations, the legislation is already before parliament to deal with increased penalties for white collar crime, the Protecting Your Super legislation and increased power for regulators, giving vindication to those who said that we didn’t need a royal commission to know what needed to be done.
And banks have largely returned to their core business, selling off, for purely commercial reasons, their insurance and wealth management arms, where most of the scandals occurred. There has also been a shake-up of sorts at most banks – with the exception of NAB, where Ken Henry, the patron saint of hairy-nosed wombats, and CEO Andrew Thorburn are the last men standing, although who knows for how long.
Yet even for world-weary cynics – and who in the sector is not – the spectacle of the slap on the wrist that the Commissioner administered to bankers was galling. The glacial slowness of the titans of Martin Place and Collins Street in compensating customers was surpassed only by their breathtaking indifference to their own culpability in incentivising these crimes and misdemeanours.
The bad news is the damage to the sector has already been done. Banks were forced to raise capital ratios, which will simply raise interest rates, supposedly to give them greater stability, even though they had passed the acid test of the GFC with flying colours. The imposition of a bank levy in 2017 gave an opportunistic government a way of currying favour with populist sentiment while helping itself to more revenue, which future governments will just jack up, further increasing the cost of banking, with deleterious effects for the entire economy. Alas, instead of explaining why strong, profitable banks are good for all Australians, banks wasted their marketing dollars on green and rainbow-coloured virtue-signalling.
The government has also introduced the Bank Executive Accountability Regime, giving the regulator the power to tell banks how to run their businesses and setting them on the road to nationalisation. This draconian over-reach is all the more extraordinary given that the thuggery uncovered by the royal commission into trade unions did not result in any parallel legislation. What is needed is not heavy-handed intervention but for existing laws to be enforced. Lax policing emboldens miscreants – in this, white-collar criminals are no different to the African gangs that rove the streets of Melbistan with impunity.
The trouble is royal commissions into banking are pantomimes, without the remit or capacity to address underlying problems that require major policy shifts. They’re red meat for the Greens and agrarian socialists and rather than crowing about calling for a royal commission before the government, Labor should reflect that it is its incomprehensible compulsory retirement roulette that has forced ordinary people, with little financial savvy, to rely on advice from shysters.
Even Mr Shorten, in calling for a royal commission, conceded that Australia has one of the strongest banking systems in the world and had no idea what it should do beyond examining scandals already uncovered and ‘anything else that might come to light’.
But when it comes to a future Labor government it is not what Shorten says that matters but his union paymasters. ACTU president Michele O’Neil’s view is that the core issue is the ‘the insatiable greed of the banks,’ echoing Labor’s manifesto of 1910, which declared that ‘Banking is one of the frauds by which capitalism bleeds the people.’ If nothing else does, that should awaken the banks from their smug self-congratulatory torpor.