Late last week, the Prime Minister announced a requirement for the banks to report annually (not monthly as was mistakenly reported in our enews introduction) to the Parliamentary Economics Committee, instead of a Royal Commission, as it is a “regular and permanent method of accountability and transparency”.
However, Opposition spokesperson Dr Jim Chalmers says it is simply “inviting them down for a spot of afternoon tea”, not holding them accountable in a conservative-dominated committee. He maintains that a Royal Commission is more substantial and focused on systemic issues of importance.
Treasurer Scott Morrison weighed into the debate at the weekend, telling Sky News the call for a Royal Commission was a ‘populist whinge’ that had caused ‘alarm’ overseas.
So, who is right?
Perhaps a hint lies in the banking sector’s refusal to pass on the Reserve Bank interest rate cuts announced last Tuesday.
The Age covered the details of banking sector profits in an illuminating article by Peter Martin, who stated “…with the election out of the way and the Coalition returned (with financial support from the banks that will be revealed shortly) they are once again acting as they would have were their behaviour not about to be dissected by a Royal Commission: they are hanging onto a good deal of the largesse the Reserve Bank handed them on Tuesday and using it to shore up their profits instead of helping their customers.”
It’s also instructive to bear in mind, as Mr Martin so conscientiously reminds us, that the top tier banks benefit from government guarantees that were put in place in the wake of the 2008 Global Financial Crisis. So in essence, banks are seen as reliable, and should they need to be bailed out, it’s their tax-paying customers who will do it. So you would think the customer should be king in the relationship?
Adding weight to the argument for a Royal Commission is ex-Reserve Bank board member John Edwards, who told ABC Radio National on Friday that the annual Parliamentary Economics Committee appearances are “not the solution in the long term”. Mr Edwards also commented that the cash rate cuts “should have been passed on, as Australian banks enjoy the best return on equity in the world and their profits are at a record high”. He was dubious about the banks’ need to cover high borrowing costs as he felt such costs were not consistent with the information available to the Reserve Bank. He also noted that a ‘social compact’ between the banks, government and Australian citizens had been broken as – given our high rate of home ownership – central bank interest rate cuts have been an effective monetary policy tool. When banks choose not to pass them on, this strategy is unable to work for the good of all.
Oh lord, where would you start? Within a week of Four Corner’s revelations about the mistreatment of children in a detention centre we have a Royal Commission. As we should. But years of white collar crime by banks is apparently a ‘populist whinge’.
Of course it is right and proper to set up a thorough investigation into the abuse of children in detention in the Northern Territory. But the haste with which that Royal Commission was instituted – and the lack of judgement in choosing who would lead it and the terms of reference – is simply woeful. Contrast this unseemly and politically naïve rush to the courts with the conservative parties’ response to years of white collar crime by our big four banks.
It really does make us ask what magnitude of financial disaster will it take before the Coalition gets serious about the failure of our major banks to play by the rules, and to serve their customers with any degree of respect or propriety.
As Dr Chalmers notes, there has been a systemic failure by our major banks to observe this country’s financial regulations and to actually put the customer first. We have seen this in deceitful financial planning (including the forging of customer signatures), failure to payout on insurance policies, the rigging of Bank Bill Swap Rates, and a breakdown in monetary policy when interest rates are not passed on, to the detriment of customers with mortgages, and the benefit of the banks’ bottomlines.
Appearing before a parliamentary committee is like being smacked in the face with a damp flannel – uncomfortable at the time, but with little lasting damage. Facing a Royal Commission is another matter altogether – real questions are asked and accurate answers are required. Claiming that ASIC has the powers of a Royal Commission is a joke, as ASIC must also be investigated for its continuing failure to bring the banks to account. As a financial regulator, its track record is woeful. And to wring its hands over the banking ‘culture’ and claim that it is merely ‘culture’ that needs to be addressed is totally missing the big picture of financial fraud. As anyone who follows Fairfax reporter Adele Ferguson’s work knows, it is clear that the big banks need to be tried in a court of law for what they have done to their customers.
As Peter Martin noted on Friday, it’s ‘business as usual’ for the big banks until the Government acts. Treasurer Sco-Mo’s attitude that the call for a Royal Commission is just a ‘whinge’ gives us little hope that his government is prepared to face the facts about our major banks and the way they are systematically screwing the retirement income prospects of millions of Australians. Harsh words? Yes – but someone needs to say it.
What do you think?
Is Mr Turnbull’s plan for banks to report to Parliament annually a good way of regulating their behaviour? Does it go far enough? Or is a Royal Commission the only solution to the ongoing problems in the financial services sector?
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