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