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Banks remain protected species



Kenneth Hayne's royal commission into the financial sector has named, shamed and excoriated banks, regulators, insurance companies and other financial services businesses to the extent that you would think they are now extremely vulnerable and universally unloved. That would be a mistake.

A general view of Commonwealth and Westpac bank branches (Robert Cianflone/Getty Images)None of this recent history changes the fact that the big banks are a protected species. Unlike many other major institutions subject to royal commission enquiries recently, including trade unions, churches, and the aged care industry, they are insulated from the most drastic government action.

Banks have a lot going for them in conventional terms, including making large political donations, using professional lobbying and maintaining influential networks, but that is ultimately not enough to protect them. Their power stems from the pivotal place they occupy in the economy. This makes them the best example there is of the power of business in politics.

What is good for the big banks is reputedly good for the economy. That is why they were protected by being given special status during the Global Financial Crisis. That is why it was so hard to bring them to account by calling a royal commission. It took several years of hard political struggle despite a crescendo of across-the-board criticism before the royal commission was eventually called by the Turnbull government against its wishes.

Labor will never stop reminding Scott Morrison, then Treasurer, that he voted against holding a royal commission 26 times. Even then the royal commission was time limited to about a year, compared to the five years for the Institutional Responses to Child Sexual Abuse RC, in a way which helped to restrict the time available to hear from those 'survivors' damaged by bank mistreatment. There could have been even more emotion generated than there was by revelations of greed, ineptitude and fees for no service.

This is the context in which the Hayne Report was released on Monday. It means that speculation that the banking industry is 'about to change forever' is probably mistaken. There has been too much talk of the industry 'bracing' itself. Yet already there have been warnings to the political class from commentators that this industry is so important that politics must be put aside in dealing with the report.

The ball is now in the hands of the government and the opposition as an election looms and a change of government is likely. Already several themes have emerged. One is the financial hardship that has already developed by stricter bank lending to home buyers and small business. In the context of falling house prices this issue touches many Australians whose fortunes are invested in their homes.


"Customers must be constantly vigilant and not rely on any government to solve their problems."


This theme also includes the share prices of the big banks; any falls caused by government regulation will impact on the superannuation policies held by millions of Australians.

Another is the desire by both sides of politics to be tough on the banks and superannuation businesses by implementing all of Hayne's recommendations. The government has been willing to wield the big stick by being tough on energy companies but does this willingness transfer to the banks?

The Treasurer indicated the government's inclination to implement all the recommendations, but the Prime Minister has urged caution on wider economic grounds. If the government's response is timid, Morrison will have to defend that caution by arguing that, as the reputedly better economic manager of the two parties, the government should be trusted on the issue.

But Morrison risks a voter backlash given the government's vulnerability to the charge that it never wanted the royal commission anyway. Bill Shorten will certainly adopt such a line of attack. Labor can afford to be bolder and tougher in terms of both the industry and the regulatory agencies in an attempt to capitalise on voter disquiet.

Beyond the immediate electoral consequences it must be remembered that the reputation with the Australian community of the banks and financial institutions will take many years to recover. Where cultural deficiencies are involved, as revealed by the royal commission, the task of bank executives and board members will be to lead from the front. Yet their appearances before the RC showed that some of them just didn't get it. Customers must be constantly vigilant and not rely on any government to solve their problems.



John WarhurstJohn Warhurst is an Emeritus Professor of Political Science at the Australian National University.

Main image: Robert Cianflone/Getty Images


Topic tags: John Warhurst, banking royal commission



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Existing comments

It will be interesting to see if the release of the report has any damaging effects at all. Perhaps tighter controls on lending will be a good thing if it means that people do not extend themselves beyond their capacity to repay debt with all the stresses that come with that. Tighter controls on the issuing of multiple bank cards would also be a good thing to lift people out of debt. Falling house prices should not cause stress to those who own their homes - after all, they are currently falling from an unrealistic and false high. Any effect is likely to be temporary and house values will rise again. Good financial managers will temporarily invest in other shares or commodities until the smoke clears and superannuants will continue to earn on their investments. I just hope the banking administrators, who will no doubt attempt to maintain profit and hence share value, do so by reducing the obscene salaries and bonuses of senior clerks and not by reducing services to customers and the numbers of employed staff at the lower levels of the banking tree. I am not holding my breath though - the mind-numbing greed and lack of insight of the bankers is unlikely to change and perhaps is the one thing that should be forced to change

john frawley | 04 February 2019  

Like many Bank customers, my family is beholden to one of the big banks we hold our mortgage with. However I have decided to move my business from the Bank to a Credit Union as soon as possible. I have been a member of a Credit Union with for 40+ years. However since becoming a member, my Credit Union itself become a Bank!! Where do we turn now? Sadly John, I have to completely agree with you that both sides of politics are too scared to take on the big banks. If I were to engage in any of the conduct they engaged in, I would find my self doing a stretch in goal . My hope(clutching at straws) is that those responsible will have the full force of the law thrown at them and banned for life! Second, the big banks should be broken up or demerged. Third the so called financial advisors should all find more productive employment, we don't need them or the so called mortgage brokers!

Gavin O'Brien | 05 February 2019  

An interesting perspective John. There was a time when the banks encouraged savings, gave piggy banks to kids, asked them to set goals like the Christmas club. Sold IAC Coupons, Government bond coupons so people accumulated. Now its a monthly fee grab which pays all their overheads. I had $500 in a credit union with no fees. That MECU merged into a bank and one day I had a look at the account and there was $219 left. Hullo? What a way to encourage savings. Where do the Banks make money? The best saving rate offered is 2.7%. July 2018 ASIC estimated Australians had 45 billion in credit card debt. At an average rate of 23% (more for cash advances) this debt in theory earns the banks $10.35 billion a year. At July 2018 Australia's home loan debt was $21.2 billion at an average rate of 4.5% earning $945 million pa excluding penalties. While we concentrate on the venality and corruption of a relatively minor number of bank officers exposed by the RC, the big picture is overlooked. Banks are making 10 times the profit from unsecured debt compared to secured debt and ordinary Australians suffer. Nero fiddled, Rome burned.

Frank Armstrong | 05 February 2019  

So, the Royal Commission is over, the relevant national leadership is receiving what appears to be well-deserved criticism, and key figures are falling over themselves to say sorry. Meanwhile we, the rank and file affected by this well-documented and decades-long lack of leadership, wonder whether we will actually see any real changes, other than tinkering around the edges. Does it sound as though I am discussing the banks? Think again.

Dennis Sleigh | 05 February 2019  

"This makes them the best example there is of the power of business in politics." So the more power the more corruption. And Many people believe that we are an economy, not a society, a nation or a community. When any group is beyond government control, the Maffia, ISIS or the banks we all have problems. In this case as you point out, John, both parties are collusive in maintaining the problems we face.

Michael D. Breen | 05 February 2019  

obviously there is no dislike of the banks as this morning's stock exchange has shown in the surge of the shares of the big four

Nicholas Agocs | 05 February 2019  

Bank shares are up, just as astute economics gurus predicted. When both the government and opposition said they would implement all of the Commission’s recommendations, one guru presciently noted that it “suggests there’s nothing too draconian in it.” And that’s just how it turned out. No structural changes that might rectify the corruption that has entered the system over the last few decades when banks entered into the wealth management and life businesses: “Banks changed from being customer-oriented low-risk organizations to ones where higher risk, short-term shareholder returns dominated strategies.”

Ross Howard | 05 February 2019  

Aren't we supposed to have freedom of religion in Australia? But clearly we are forced to worship The Economy', and its high priests have no reason to feel threatened. Maybe they don't understand - or maybe they understand all too well. Something familiar here...

Joan Seymour | 05 February 2019  

If the history of parliamentary democracy shows anything it it this. Government cannot legislate morality. The best we can settle for is that governments to legislate to make some immoral acts crimes, set up an agency to police these laws, and for offenders to go before a judiciary to be punished. Homicide is an easy example. It is even included in the Ten Commandments. Expounding moral principles with regard to money (or wealth is fraught. I remember back to my early religious instruction where I learned a basic lesson in Moral Relativism. The question put to us ten year olds was: Is it the same grave sin to steal five pounds from a tradesman earning six pounds a week as it is to cheat a millionaire owner of a shipbuilding firm worth fifty million pounds out of fifty pounds? In the current situation I might ask my ten year old grandson: Is it the same grave sin to offer a customer an interest rate of 1% when I am going to use his money to earn myself 10%?

Uncle Pat | 08 February 2019  

Might I suggest that only Aboriginal Australians be eligible to serve as senior executives in Australian banks? This would ensure that, if the banks continued to behave in this way, their senior executives would go to jail.

Michael Cosby | 08 March 2019  

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