Parliamentary bank hearings inadequate
Another week and despite its best efforts the Turnbull government is on the wrong side of another argument as far as the general public is concerned. Not that the prime minister will admit it. He likens Labor leader Bill Shorten’s calls for a banking royal commission to a pirate’s parrot: “They just keep on saying the same thing, ‘Have a royal commission, have a royal commission.’ That’s all they want to say.”
Research from The Australia Institute has found overwhelming support for a royal commission. The consumer advocates at Choice have found a deep mistrust of the banks. The institute survey found 68 per cent of people support a royal commission, and only 16 per cent were opposed. Even 62 per cent of Coalition voters think it’s a good idea. Not surprising, when many of them have been burnt by the banks. These are the ones who have been letting their MPs know they are very unhappy. Worse for Turnbull, 52 per cent believe his refusal to call a commission shows he is trying to protect the banks.
Labor has spent the past six months hammering the banks while the Liberals have had to start crab walking back from their original position that it was nothing but cheap populism. The main feature of any “populism” is that it taps into a community sentiment, prejudice or fear. It’s “cheap” when those views don’t bear closer scrutiny or are based on a shallow understanding. In the case of the banks, the mood is based on thousands of Australians being victims of unconscionable, negligent or arrogant behaviour that has cost them their life savings in many instances. When it has not wrought that much damage it has still “robbed” customers of their due.
The sins are many: shoddy or shonky financial advice; heartless and plain wrong denial of insurance payouts; charging for services not even rendered; failing more generally to compete on fees or product costs. The pity of it – tragedy wouldn’t be too harsh a word – is that in most instances it is not the government’s regulators or agencies, let alone the banks themselves, that have nailed the problems. It is in the main the media, particularly investigative journalism from Fairfax and the ABC. They have been fed heartbreaking stories from victims who have not been able to get satisfaction anywhere else.
Kevin Hogan is a Coalition member of the house of representatives economics committee. It was charged with probing the four big banks’ CEOs this week. Hogan asked one of the more pertinent questions to the ANZ’s Shayne Elliott. He said the question was prompted by constituents’ concerns. He is a Nationals MP from the northern New South Wales electorate of Page, based in Grafton. There’s never been much love lost between the old farmers’ party and the banks. He asked Elliott: “Why do you think you are here?” The answer: “As an industry we’ve lost touch with our customers. We’ve become too internally focused, which has led to poor behaviour and a poor culture and we intend to fix it.”
This is the nub of the problem and why the government’s bluster is so pathetically inadequate. Having betrayed the trust of millions of customers, the banks are now being trusted to get their own houses in order. And to do it with a completely inadequate level of transparency.
Elliott, like Commonwealth Bank’s Ian Narev, came to the parliamentary hearing in sackcloth and ashes. But the penitent’s garb could impress only the most gullible. “I’ve said before how sorry I am for the pain that we’ve caused,” the CBA boss intoned with carefully rehearsed sincerity. “I say so again today.” Not quite as polished but equally well rehearsed, Elliott said: “Each time we fall short we potentially harm a customer or a member of the community and for that I apologise.”
It is crisis management 101 to admit to an egregious error that cannot in any way credibly be denied. But does it solve the problem? Bill Shorten thinks not. He says the banks will be back to business as usual on Monday, the distraction of their parliamentary appearances behind them for another year. But the prime minister thinks the annual event will be a game changer. He says the economics committee grills the Reserve Bank governor, after all. That’s mostly about the state of the economy rather than the state of the bank.
A sure-fire hint that not even Turnbull or his treasurer Scott Morrison think the three-day hearings are enough is that on Monday the government announced a clampdown on bank bill swap rates. The banks deny any rorting of the rate they charge each other, which cascades to the rates they charge customers. Morrison doesn’t believe them. He says his new regulations will see “people mucking around with the bank bill swap rate potentially facing criminal penalties”.
It was the fifth such toughening of regulations or measures announced in the past seven months. One new measure is a complaints tribunal that sounds suspiciously like a royal commission, at least if some Liberal backbenchers such as Craig Kelly, another economics committee member, get their way. The government is desperately trying to look as though it’s doing something. The penny has finally dropped for Morrison that most Australians actually want a royal commission. But he, like Turnbull, claims that would only delay further strengthening of the financial system. It’s a claim that relies on the belief that this government or any government can’t walk and chew gum at the same time. Shorten says it’s a fiction dreamed up by a government that doesn’t want to have the “king of all inquiries, which is a royal commission”.
Undermining the government’s credibility in this whole area is its record since coming to power. Treasurer Joe Hockey, whose office was dominated by former bankers, set about dismantling the Future of Financial Advice reforms that Labor introduced in response to shockingly conflicted advice rife in the industry. And more: the Coalition cut more than 200 jobs from the regulator, the Australian Securities and Investments Commission (ASIC) and $120 million from its budget. Morrison put back $127.2 million in April, as he clambered to checkmate Labor. In reality he was playing catch-up.
If the hearings this week did anything, they strengthened the case for a royal commission. The committee process is simply not fit for purpose. Chief executive after chief executive admitted mistakes and said their bank had learnt from them. There was no way to test these claims. The committee was told no one was sacked at CBA’s insurance arm CommInsure despite admitted cruel incompetence. Oh, and internal inquiries are still ongoing. All as impenetrable as a brick wall.
A properly constituted royal commission, with a team of forensic detectives, solicitors and high-powered barristers, would be delving into the pathology of these “mistakes”. Were they board-inspired policy? How can the same overcharging for services not rendered to 400,000 customers happen four times since 2015? Why weren’t the right procedures and controls put in place? A sneaky way to boost profits? Were other errors accidental or the result of fraud, poorly designed systems, bonus payments that encourage the ambitious to push the envelope? Is there an email trail or documents on any of it?
As The Australia Institute economist Richard Denniss says, the banks are the stewards of enormous amounts of people’s money and they surely need the highest level of scrutiny. That scrutiny should be transparent and culture busting, as we have seen with the Royal Commission into Institutional Responses to Child Sexual Abuse. The big four act as a virtual cartel. Australia, unlike the United States, has weak divestment laws. The fact that they are the most profitable banks in the OECD is proof enough for Denniss that there is no real competition. Real competition pushes down costs for consumers and limits profits. There is no equivalent of Uber’s challenge to the taxi industry at work with our banks. The institute’s research also found Australians need little convincing. Sixty-one per cent believe the banks should be hit with a super profits tax.
The politics of all of this is reinforcing the perception of a government out of touch. It was the plebiscite last week, the banks this week. Government backbenchers are beginning to wonder whether Turnbull has the political smarts to recover and begin setting the agenda. Shorten, like the tortoise, is slowly but surely overhauling this hare. On both issues – same-sex marriage and the banks – he is, in fact, running rings around him.
And almost on cue comes a Fairfax report from Britain that deposed prime minister Tony Abbott has been telling his Tory mates he can be PM again. He denies it on Twitter. Turnbull tries to dismiss it as uninteresting gossip. But as one veteran Liberal MP says, the fact that Abbott is still in parliament tells you all you need to know.
Next week Labor will bury the plebiscite but Shorten has no intention of dropping either marriage equality or the banks as causes. It will take more than bluster to stop him.
This article was first published in the print edition of The Saturday Paper on Oct 8, 2016 as "The big bank query". Subscribe here.