The Banking Inquiry has passed us. But beyond the political point scoring and the grandstanding, what real progress was made?
Let us start with the “Why?” Or more specifically, “Why now?”
In the lead-up to the Federal Election, Bill Shorten announced his intention to launch a Royal Commission into the banking sector if he was elected. There are some potentially very valid reasons for utilising the highest investigation in the land to look into the banking sector. But the public feels Mild Bill did it for the votes.
It’s a wise move – the banks are an easy target. Most of us feel ripped off by them (even if we aren’t sure how), and if a politician tells us he’s going to throw the book at them, then we stand up and listen.
On the other side of the coin, Malcolm Turnbull doesn’t want a Royal Commission. Apart from the obvious reasons associated with being an ex-banker himself, his resistance also boils down to votes. Not the types of votes that Bill is chasing from the general public, rather, the votes from the wealthiest and most influential from within his own party. Those people who turn the knife when the time comes.
Allowing the Royal Commission would be politically dangerous for Turnbull, but ignoring the calls for it will provide the Labor party enough public relations ammunition to make victory for them at the next election a foregone conclusion. So we are now in the middle of the compromise; the “Inquiry”.
This leads us to the “What?”
The true aim is to make enough progress to convince everyone that further digging is not required. The cheating husband that explains the whiff of perfume when he gets home late as being from the strip club he went to, rather than the brothel.
In human speak, this week boiled down to the four majors meeting a ten person committee from the House of Representatives who are supposed to grill them just enough that the public feel that something has been done, but not enough to create justification for the very thing they are trying to avoid – a Royal Commission. The true aim is to make enough progress to convince everyone that further digging is not required. The cheating husband that explains the whiff of perfume when he gets home late as being from the strip club he went to, rather than the brothel.
At a time when household debt is rising and more Australians are struggling, the banks continue to make super profits. They are the most literal representation of the growing income divide in this country that there is. It is difficult to make a case for not investigating the banking sector.
As proceedings are now closed. It’s best to look at what was won.
The creation of the Banking Tribunal is the most transformative action, allowing disgruntled customers to take their complaints to an impartial umpire. All four banks agreed to it, and will apparently help fund its implementation.
The second reform is streamlining the ease of switching banks, allowing the ASIC to reveal the financial history of customers who want to go elsewhere, hence speeding the process. Think of it as swapping carriers but keeping the same number.
The third would be encouraging (make note of the language) banks to provide variable mortgage accounts that move in line with the Reserve Bank.
But, was it enough? And enough to avoid a Royal Commission?
Truth be told, the entire exercise is doused with the unmistakable stench of political point scoring. The reality is that not addressing some of the issues being raised could have dire consequences beyond our individual bank balances.
Let’s look at the hot topics that should be discussed, moving toward the potential RC.
Put simply, we’ve been getting a pretty rough deal as consumers. The Reserve Bank has been consistently lowering the official cash rate for a few years now but getting the banks to pass on that rate decrease has been like getting blood out of a stone.
The cash rate is what the Reserve Bank considers to be the “fair market interest rate” on money. The basic principle is that lowering this rate will encourage people (particularly businesses as business investment is very low at the moment) to borrow more and invest that money into areas that will fuel all the things we like in the economy: growth and jobs. The other aim is to deal with our low inflation rate, which is causing a lot of headaches. Without going too far into the economic theory behind inflation, in simple terms, it’s like Goldilocks’ porridge; too high can be very bad, too low can be just as bad for different reasons. The current accepted target among developed nations is that “just right” would be somewhere between two and three percent. We’ve been sitting under two percent since the beginning of 2015 and are currently sitting at one percent.
So, lowering the cash rate works in theory – if the banks pass on the rate cut. If they don’t, then it’s effect is seriously diminished. They haven’t been passing it on in full, which, apart from pissing us off as consumers, is not particularly helpful for the economy. What’s worse is their excuse is rising costs, whilst in the same breath announcing record profits. The most recent rate cut in August from the RBA (0.25) was not passed on by the banks at all; seven days later the Commonwealth Bank announced a full-year cash net profit of $9.4 billion – an increase of three percent from the previous year.
The banks are not obliged to pass on the rate cuts; the banks, like any public company, have one boss to answer to – their shareholders. However, banks aren’t like other public companies. They are the single biggest influencers in our economy, and that comes with a duty of care.
The CBA was also recently caught out via a joint Fairfax/Four Corners investigation, ripping their insurance customers off. The short version is that they deliberately used out of date medical definitions related to heart attacks to deny life insurance claims. So as you are grieving the loss of your loved one, left trying to make sense of the inevitable chaos ahead, your bank tells you that they aren’t going to pay out the life insurance policy; and this is done on the basis of the smallest of medical technicalities (1.512 micrograms per litre of troponin to be exact); a basis proven to be knowingly fraudulent.
The entire exercise is doused with the stench of political point scoring. The reality is not addressing some of the issues being raised could have dire consequences beyond our individual bank balances.
Then there are the financial advice scandals. Back in 2014, the first scandal broke (again, with CBA) where it was found that they had been giving dodgy financial advice to their customers, forging signatures, deliberately overcharging customers and even creating accounts in the names of clients without their permission.
National Australia Bank have had their share of bad press as well. They failed to accurately disclose foreign transaction fees which resulted in them having to refund $20 million back to credit card holders. They also had to pay $9.2 million to others for failing to waive fees on some savings accounts, as well as $6.5 million for also giving out dodgy financial advice through their financial advisors.
ANZ have already been dragged over the coals during the Inquiry regarding their “blokey” culture, with CEO Shayne Elliott admitting that there has been some “appalling” behaviour by a few at his bank. They’ve also been implicated by ASIC in a scandal regarding market manipulation of the bank bill swap rate – basically fixing prices for their own benefit.
The four men facing the parliamentary inquiry are also, unsurprisingly, well compensated. Ian Narev, the head of the CBA, took home a lazy $12.3 million in the last financial year – in the midst of the scandals above and whilst not passing on rate cuts. A pure capitalist will tell you that’s just the way the world works. A pure Aussie will tell you it’s just not cricket.
Also on The Big Smoke
The bottom line is, serious questions need to be asked beyond the inquiry. Where there’s smoke, there’s fire, after all. The banking sector underpins our economy. The global financial crisis in 2008 was a stark reminder of how far-reaching and devastating the effects can be when a banking industry is allowed to be a law unto itself.
Even if the current inquiry asked the right questions, the responsibility now lies with the Government as to what actions are taken in response to the answers given; as well as establishing whether those answers are just a Copperfield-esque trick of misdirection, designed to stop the digging before the real skeletons are discovered. Can we honestly trust them to do that when they are fighting just as hard as the banks to avoid a full, independent investigation? A recent poll from the Australian Institute shows that 68 percent of Aussies are in favour of a Royal Commission, which suggests that it will take a little more than lukewarm apologies and vague promises to avoid one, a general angst best visualised by the Australian Financial Review’s Laura Tingle, when she Tweeted: “Wouldn’t it be more time efficient to just set up some stocks outside Parliament House?”
Bring out your dead.