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What are banks for?

  • 18 January 2019


The Royal Commission into the Banking and Finance Industry has revealed many nefarious practices and activities. They should be condemned. But we should not allow the media, government or broader public discourse to interpret the findings of the royal commission through a moral lens that portrays the practices as the work of corrupt or greedy individuals.

While insisting that wrongdoers are held to account, we must resist the tendency to throw them under a bus and be done with it. Those individuals and those practices are symptomatic of much bigger structural problems. The opening of the finance sector to scrutiny provides an opportunity to examine its position in the structure of the contemporary Australian political-economy, and, most importantly, to make the changes necessary to place it at the service of the people, rather than allowing it to continue to prey on us.

Many commentators have expressed surprise at the level of predatory behaviour exhibited by banks. But why should we be surprised? There are numerous structural and systemic reasons why banks and bankers should behave in these ways, mostly to do with the fact that they have too much power within the economic system.

First, although banking services, especially the provision of credit, are essential to the functioning of a modern economy, and to the lives of virtually every individual, to the extent that it is almost impossible to participate in society without using banks, those services are not treated as essential services. The primary driver of banking services and their regulation is private profit, not the need to maintain an essential service for the public good.

Second, because banks have become so big, so powerful and so important to the maintenance of the system of financialised capitalism — as the Global Financial Crisis showed — governments have decided that they are 'too big to fail'. Bank bailouts overseas, and government guarantees on deposits in Australia, fundamentally shifted the risk of bankers' activities to the taxpayer, telling bankers that normal business rules need not apply to them.

Third, banks play an inordinately large role in the Australian economy, as manifested in the proportion of stock market value caught up in bank shares — around 30 per cent of the ASX. This fact has deep causes and ramifications.

It is largely a result of the fact that the Australian economy, as has been the case with much of the rest of the rich world over the last