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Self-regulating banks rob us blind: the need for a Royal Commission

Self-regulating banks rob us blind: the need for a Royal Commission

In 1937 Australia witnessed a Royal Commission into the banks. The Napier Commission was established following public antagonism to a banking sector indifferent to the public interest, not least in the claimed deepening of the 1930s Depression. Author: Dr Evan Jones

A Royal Commission precedent

The Commonwealth Bank itself, created in 1911, having been appropriated by a banking elite in the 1920s, was part of the problem.

The report’s recommendations, from staid to progressive, sought to reassert public influence over monetary policy and the scale and character of credit. The Labor member, a certain ex-engine driver called Ben Chifley, had stronger views.    

Banking differs from any other form of business [Chifley said] because any action — good or bad — by a banking system affects almost every phase of national life. A banking policy should have one aim – service for the general good of the community. The making of profit is not necessary to such a policy. In my opinion the best service to the community can be given only by a banking system from which the profit motive is absent, and, thus, in practice only by a system entirely under national control.

The Commission’s recommendations were pigeon-holede due to bank opposition and then war. Ironically, although Chifley’s radical agenda failed in the courts and ultimately led to Labor’s defeat in 1949, the Napier agenda was generally institutionalised in Chifley’s 1945 banking Acts.

The 1945 banking Acts formed the basis for the post-1945 regulatory structure. This extensive regulatory structure reflected the (private) trading banks’ public character by virtue of their deposit liabilities (chequing accounts) serving as a means of exchange and of their credit creation capacity. The private trading banks wanted all the benefits of their privileged status (literally a license to print money) without any of the obligations, so they fought the regulations from the start.

Given the evolving character of financial institutions (not least the breakdown of fixed exchange rates and transformed financial globalisation), it was inevitable that the regulatory apparatus would have to be re-examined. But the ”re-examination” came in the form of the 1979 Campbell Committee inquiry, established by then Treasurer John Howard as advised by the green-behind-the-ears John Hewson.

The opening paragraph of the 1981 Campbell Report reads:

The Committee starts from the view that the most efficiency way to organise economic activity is through a competitive market system which is subject to a minimum of regulation and government intervention.

Decades down the track, the bald-faced effrontery of this statement still fills me with despair and outrage.

One would imagine that the Campbell Committee would have analysed the origins of and reasons for the inherited regulatory structure. The Committee did nothing of the sort, claiming that prior government “intervention” was a product of imperfect capital markets that were on the road to being rectified.

The past was thus rendered irrelevant. In other words, the Campbell Report re-started history, with 1981 as Year Zero. The entire succeeding financial system and its flimsy regulatory structure, with associated personnel and “expert” analysts, exist in a world that begins only in Year Zero.

Amongst the éminences grises deserving exposure, none is more significant than David Murray, CEO of the CBA 1992-2005. Murray, with the CBA’s chief counsel Les Taylor, presided over the forging of the privatised CBA’s corrupted culture. The Abbott Government appointed this man in December 2013 to head the Financial System Inquiry, yet Murray, rather than being a central figure in forging “reform”, is utterly representative of the problem.

This manufactured historical myopia ensured that the ongoing banking crises and the escalation and entrenchment of corruption were foreordained – as I laid out in an article in April in the Canberra Times. 

To those not bound by this absurd diktat, the current fiasco in Australia’s financial sector was entirely foreseeable.

But it’s no wonder that the current political class is so cowed. The environment is straight-jacketed by comprehensive ignorance, ideological prejudice and cowardice. Not to mention payola.

It doesn’t help that the banks contribute to political Party coffers, especially to the Liberal Party, with the Libs also enjoying closer personnel linkages – Arthur Sinodinos as exemplar. But Labor’s Achilles heel is its fearful refusal to reappraise Labor’s dominant contribution to financial deregulation and thus question the untouchable era of the gods Keating and Hawke.

The rot sets in

Even while Labor was furthering the deregulation of the financial sector in the mid-1980s, the banking sector’s dysfunctionality was in evidence. This malady was most striking in the banks’ rush into (so-called) “foreign currency loans” (FCLs), in which million dollar plus loans were formally denominated in Swiss francs, US dollars or Japanese Yen.

The formal attraction to borrowers was the significantly lower interest rates. FCLs were “sold” to borrowers who were generally mislead as to the complex nature of the beast, with the banks meanwhile ripping off the typically naïve borrowers with under-the-table fees associated with currency conversion.

The dollar (floated in December 1983) fell in 1985 (it plunged against the franc) and the borrowers faced a blowout of the loan’s principal, against which the lower interest rates were meaningless. The borrowers were left to the “mercy” of the courts in which, with some famous exceptions, the borrowers were crushed under legalistic palaver and judicial complicity. The Labor Government’s 1991 (Martin) Parliamentary inquiry and report absorbed the dissent and supportive media coverage, and legitimised de facto the scam.

Where were the regulators during the FCL affair?

David Morgan was then Deputy Secretary in Treasury, the top bureaucrat overseeing the finance sector. Nowhere to be seen. Hot on the heels of recommending to Treasurer Keating the interest rate hike that brought us “the recession we had to have” he jumped ship and joined Westpac as a senior manager in 1990, at the height of the disclosure of Westpac’s criminal culpability in the FCL saga.

Morgan became Westpac CEO in 1999. During this time Morgan ignored the claims of FCL victims for redress and compensation.

John Laker was in the prudential wing of the Reserve Bank that later became APRA in 1998, Laker later becoming APRA’s longstanding Chairman. In the early 1980s, the banking sector was still under an aggregate quantitative lending limit imposed by the RBA, and foreign currency dealings were also monitored closely by the RBA. FCL activity was thus clearly in the RBA’s purview. Laker and his colleagues were nowhere to be seen.

Westpac FCL victim Lionel Potts wrote to the RBA on 1 August 1994 requesting:

… as a follow on from my interview with Michele Bullock on the 25 July we would now ask for copies of any Reserve Bank documents relative to this transaction [Potts’ loan] and including
(a) The application for approval as submitted
(b) The Reserve Bank approval with conditions thereto

The RBA replied on 5th August 1994:

I refer to your letter of 1 August concerning your foreign currency loan with Westpac Banking Corporation.

The Reserve Bank no longer holds any records relating to Exchange Control transactions; the last such records were destroyed in 1991/92.
Scandalous. It is pertinent that Potts, having won his case against Westpac in his Trial hearing, was destroyed in a totally corrupt Appeal process in late 1991. That ludicrous judgment put paid not merely to Potts but to all Westpac FCL victims who had yet to obtain justice.

The RBA reply to Potts conforms to my experience. In July 2014 I emailed the RBA Archives unit requesting information on files held relating to FCL activity and oversight in the 1980s. I received the following reply in August 2014:

I have … conducted several searches of our archive, but was not able to locate any records on foreign currency loans from the 1980’s.

What? It is pertinent that Bernie Fraser was Hawke/Keating’s Secretary of the Treasury during 1984-89, from whence he became Governor of the RBA during 1989-1996.

Regulatory inaction is combined with sweeping that inaction and its implications under the rug.

Ongoing disclosures of skulduggery, court cases and borrower lobbying kept the issue in the news, leading to the call in late 1995 for a Royal Commission into the matter by three government back-benchers (one Liberal, two National).

A Royal Commission was entirely appropriate, because of the complexity of the foreign currency loan facilities (they remain opaque to this day), the transparent chicanery of the banks, its implications for bank practices and culture in the deregulated environment, the character of the lax regulatory apparatus that remained and its implications for a reconsidered regulatory apparatus. That call, of course, was ignored by the powers that be.

Thus did the banks settle into an exceedingly comfortable (and escalatingly profitable) environment of “anything goes”, accompanied by the perfunctory and cynical paraphernalia of “self-regulation”, namely the banking ombudsman and the code of banking practice.

The temperature finally heats up

Fast forward twenty years (albeit no fast forward for victims).

The Senate Economics Committee inquiry into ASIC was established following ASIC’s scandalous inaction over the CBA’s subsidiary Commonwealth Financial Planning’s corrupt appropriation of investor assets. The June 2014 report recommended, inter alia,

12.28 The committee recommends that the government establish an independent inquiry, possibly in the form of a judicial inquiry or Royal Commission, to:
•    thoroughly examine the actions of the Commonwealth Bank of Australia (CBA) in relation to the misconduct of advisers and planners within the CBA's financial planning businesses and the allegations of a cover up;

The recommendation was reported at the time, because significant, by the indomitable Fairfax journalist Adele Ferguson. It is instructive that Senate Committees are typically chaired by a Member of the Opposition, thus the tendency to stronger recommendations. In the ASIC inquiry, the chair was Labor Senator Mark Bishop. In the current context, Bishop recently reminded us (albeit cryptically written) of that earlier recommendation.

A potentially negative response from the Abbott government was implicitly flagged when the Senate Committee’s senior government member, David Bushby, wrote a minority dissenting statement appended to the ASIC inquiry report, which included:

1.35 A Royal Commission is primarily intended to undertake a fact-finding mission, however, the issues proposed to be examined here have already been extensively reviewed—including by ASIC, the CBA, the police and the committee.
1.36 Although a Royal Commission might recommend improved practices, existing institutions have already been at work exploring and driving wide-scale reform in the financial sector.

These claims are rubbish of course. The CBA is unrepentant, ditto ASIC, and the police are nowhere to be seen.

But Labor has pulled the same stunt. The same Senate Committee’s 2012 Post-GFC Banking inquiry occurred when Labor was in office and Bushby was in the chair. The report was comprehensively useless; even so the Labor Senators (Bishop himself and the bolshie Doug Cameron) wrote a dissenting statement claiming that with ongoing reforms the (Labor) government had the matter in hand.

Also rubbish. So it’s been politicians running for cover to date. But at least the Bishop-led ASIC inquiry did let the Royal Commission genie out of the bottle.
Mike Carlton (we miss you Mike) picked up the baton in July 2014:

But what's really needed is a royal commission into the big four banks, the finance industry at large, and the abject failure of the supposed watchdog, the Australian Securities and Investments Commission, to protect investors. An explosive report [into ASIC] by a Senate committee called for that very thing last week, but the Abbott government brushed it off with the excuse that there's already an inquiry under way.

And indeed there is. But it's headed by David Murray, who was the CBA's chief executive for 13 years until 2005, when the gouging had already begun. That's a bit like asking the fox to investigate the blood and feathers in the henhouse.

The expected negative stance from the Government came in October in its formal response to the Senate Committee’s report.

The Coalition government has refused to hold a royal commission into the Commonwealth Bank of Australia as part of its response to a landmark Senate inquiry.

But comes 2015, the Coalition Government is digging in with the ‘No Royal Commission’ flag.

Strutting his stuff was then Assistant Treasurer, Josh Frydenburg (only recently replacing in that post the in-trouble Arthur Sinodinos). Thus in February:  

The government is resisting renewed calls for a royal commission into financial advice after revelations of misconduct at National Australia Bank, saying it is already responding to problems in the industry. …

"We have no plans for a royal commission," Mr Frydenberg said. "As you know a number of these concerns date back to a time when Labor was in office, from 2009 onwards. ASIC is investigating, I've spoken to ASIC, they've told me it's a high priority for them."

Note that at the time of the Frudenburg statement, it was also reported that:

And Opposition Leader Bill Shorten said Friday that Labor supported a royal commission.

Hm — Labor begins the hot and cold dance. However, National Senator John Williams was consistently demurring from the Party line (even though his own National Party was in hiding), popping up intermittently to claim that a Royal Commission was appropriate and overdue.

With the disclosure that the NAB was also involved in “wealth management” rorts, Williams (February 2015):

… has submitted draft terms of reference for a royal commission into white collar crime to Treasurer Joe Hockey's office. …

Senator John Williams said a royal commission should include the banks, liquidators, financial planners and financial products such as managed investment schemes and valuers. "I will be pursuing it with my colleagues when I get back to Canberra this week," he said.

It is relevant that Williams’ family was a foreign currency loan victim of the CBA. Thus Williams provides a rare link between the 1980s and the current era, during which bank corruption has never gone away in spite of the blinkers of the political class.

Comes June 2015, the disclosure that IOOF (a one-time respectable Mutual) was now in on the act lead Greens Senator Peter Whish-Wilson to foreshadow a motion for a Royal Commission into financial sector misconduct.

The notice of motion filed by Senator Whish-Wilson said the Greens Party "notes the allegations that financial planners at the Commonwealth Bank of Australia, National Australia Bank, ANZ Bank,

Macquarie Bank and, most recently, IOOF having engaged in unethical and/or unlawful activity".

Curiously, Labor, via the Shadow Treasurer Chris Bowen, with suitable blah, was now not interested. In particular:

Representatives for Labor senator Sam Dastyari — who has been vocal in his calls for a royal commission — declined to comment, referring inquiries to Mr Bowen's office.

Whish-Wilson’s motion of 23 June was defeated the next day because of lack of Labor support. Williams crossed the floor:  

"I could have chosen to chicken out and abstained from the vote but I would have made a hypocrite of myself. I've been calling for a royal commission into this stuff for five years and this is one of the things I'm most passionate about.''

Fairfax editorial, always unpredictable, came out in favour of a Royal Commission on 10 July 2015, in effect supporting the persistent disclosures of its journalist team.

Things then quietened down on the propaganda front.

However, the Joint Parliamentary Committee (JPC) inquiry into the Impairment of Customer Loans was holding its public hearings in late 2015 and early 2016. Peculiarly, this inquiry and the hearings were receiving minimal exposure in the media – save for yours truly on this site, here and here.

Barrister Peter King (sometime Liberal MP for Wentworth, until unceremoniously deposed by its present incumbent) appeared at the JPC hearing on 16 February 2016. King has been acting for defaulted bank borrowers, mostly farmers ending up with ANZ facilities after ANZ acquired Landmark from the AWB in 2010. In this context, he called for a Royal Commission.

Banks have put some farmers into default for falling only $10 behind on their loans or missing a payment by just a couple of days, a parliamentary hearing was told on Tuesday.

Sydney barrister Peter King, who has represented more than 50 farming customers in disputes with banks, cited these instances of "technical default" as part of a wider pattern of poor treatment of farmers by banks, which he believes should be investigated through a royal commission.

Then in March came the joint Fairfax/ABC Four Corners exposé of the CBA’s CommInsure rort. This shocking disclosure lead the Australian Shareholders Association to call for a Royal Commission into the entire insurance sector.

Thus we get these intermittent “call to arms” over a 21-month period for a Royal Commission into various domains of the finance sector. Nothing happens but rallying cries. Then the dam bursts in April 2016.

Labor runs with the ball

On 6 April the Prime Minister rose from his habitual indolence to chastise the banks. The occasion was, of all places, the 199th birthday celebration of Westpac bank. Only several days previously, ASIC had launched action against Westpac for rate-rigging.

If Turnbull had imagined that he was being bold in his stance, the punters were not impressed. Letter writers to the Sydney Morning Herald were derisory. For example:

From John Richardson, of Wallagoot:

Why is it that our politicians think that they can shamelessly lie, deceive and cheat the entire nation on a daily basis, sanction the most heinous behaviour against the most defenceless, while enriching themselves from the public purse, and still expect that anyone will listen to, let alone respond to, their hypocritical, self-righteous lectures? Bah humbug.

From Peter Leonard, of Kingscliff:

So the PM gets stuck into the banks' failure to show some social responsibility, but does not see a need for a royal commission. Once again, as with his past feel-good words on changing the way politics is done in this country, on ensuring fairness in the taxation system, on health and education, we get comforting assurances and no action.

On 7 April, the SMH editorial, perennially conservative or cautious at best, came out for a Royal Commission. Remarkable.

Then on 8 April, Labor, out of the blue, takes a stand for a Royal Commission. Even more remarkable. The Right-wing machine that runs Labor has done something we can believe in for a change. The press reported on the unexpected change:

When asked why Labor had waited years to call for a royal commission into banks Mr Shorten said: "After every financial scandal we have been told this is an isolated incident. But there's only so many isolated incidents you can have before you have a systemic problem."

Perhaps cynical – as Ross Jones notes on this site:

Labor’s banking Royal Commission is one of the great all time wedgies, a handful of belt and underpants that made the Coalition’s financial genii’s eyes water and snot to form in small beads on their collective upper lips.

Quite. Game on.

CBA whistleblower Jeff Morris immediately lent his authority to the call:

I've seen things that are so utterly appalling that you might think that people saying these things were cranks, but for the fact that you'd seen them yourself.

It's only a royal commission that will be able to do this job: that will have the resources. The parliamentary inquires: they've done a terrific job, the various parliamentary inquiries. But they have very limited resources and very limited time. The thing about a royal commission is: it's got plenty of expert staff, plenty of time and plenty of resources to actually get to the bottom of this sort of appalling behaviour.

Then came the immediate barrage of naysayers from within the industry and from their toadies in the Coalition ranks.

On 8 April

The Australian Bankers' Association says the royal commission now being advocated by Bill Shorten is entirely unnecessary and would even be counter-productive. The government agrees, branding it rank populism in an election year.

When I see the word “populism” being bandied about I reach for my gun. The word is resurrected by unscrupulous, lazy and ignorant elites and editorialists to discount the substantive experience and complaints of the disenfranchised.

Treasurer Scott Morrison maintains that the Australian Securities and Investment Commission has even more extensive standing powers than a royal commission, and as such, no dedicated probe is required. He says that the banking watchdog, the Australian Prudential Regulation Authority has imposed stringent capital holdings requirements on the big banks and keeps a sharp weather-eye on their activities. And he further notes that the Reserve Bank also provides a rigorous operating framework for the commercial banks.

All wrong of course. If the regulators had done their jobs the succession of disasters would not have occurred or, if so, would have been subject to assertive retribution of those responsible. Nothing of the sort.

The same day:  

National Australia Bank chief Andrew Thorburn has branded Labor's push for a royal commission into the finance sector a "serious distraction", as the banking industry rejected the proposal as unnecessary and potentially damaging to confidence. …

… bankers including Mr Thorburn argued the proposal was unnecessary, saying banks had already received extensive scrutiny through various inquiries including the financial system inquiry led by former Commonwealth Bank boss David Murray.

Thorburn presides over an ongoing corrupt regime at the NAB, so his response is predictable. As for “damaging to confidence”, what a laugh. It would have been more strategic for the vulnerable Mr Thorburn to have stayed out of sight.

As for “extensive scrutiny” – complete bullshit. David Murray, being part of the problem, ignored the issues that lie behind the call for a Royal Commission.

On 11 April, Turnbull repeated Morrison’s verbiage. So did Fairfax columinist Peter Reith, ex- Liberal Minister tarnished forever with his corrupt involvement in the waterfront dispute. What is Fairfax doing giving this shyster a running platform?

Another John Richardson missive, this time on Crikey, goes straight for the jugular on this tripe, including “head-kicker” Liberal MP Steve Ciobo in his sights.

Meanwhile, three other National Party MPs (George Christensen, Luke Hartsuyker and Ken O'Dowd) claimed themselves amenable to a Royal Commission, joining Nationals John Williams and Warren Entsch. Then three Liberal MPs —   David Fawcett, Bert van Manen and Philip Ruddock, all members of the Impairment of Customer Loans inquiry — joined the dissent.

The Australian Financial Review tribe chimed in against the Labor initiative. On 11 April, it was Christopher Joye. On 7 April, it was Tony Boyd. On 8 April, it was Jennifer Hewett. On 9 April, it was Tony Boyd again. Etc. All of these articles divert to irrelevant obfuscation. Our post-deregulation banks are healthy, profitable, efficient, vital to the economy, blah blah blah. If Fairfax management gets a kick out of retrenching staff, why doesn’t it simply cease publication of the Fin? Towards that end, I raise a glass to ex-Fairfax journo Paddy Manning.   

On 12 April, academic Andrew Schmulow argued for the necessity of a Royal Commission.

There are cultural and ethical malpractices prevalent in Australian banks which our regulations do not address and which our regulators have struggled to contain. Those malpractices appear to be spreading, and our banks have failed to act meaningfully. The potential effects can be dire, so we need to find solutions. [Murray’s] Financial System Inquiry failed to address the problem. A royal commission would.

Asking [the] question — how to improve the culture of our banks — involves asking for information which may be incriminating. The people asking the questions, in order to arrive at credible answers, need the power to compel those answers. If compelled by a royal commissioner, the answers would have to be given publicly.

Quite. Fairfax reproduced Schmulow’s article (without acknowledgement) on 15 April, juxtaposing Schmulow’s stance with that of the Ethics Centre’s Simon Longstaff. Bizarrely, Longstaff opposes a Royal Commission. The regulators have the capacity he claims, just give them adequate resources for the job. Investigations are best kept secret. Banks are cleaning up their dysfunctional culture themselves. Ethics, smethics, Longstaff is an embarrassment.

On 14 April, at a luncheon speech, former ACCC tsar Allan Fels contradicted the Coalition’s mantra about the regulators being on top of the job. Rather:

Australia's corporate watchdog lacks a strong culture of law enforcement and is "too cautious" when it comes to pursuing wrongdoing by companies [said Fels]. Professor Fels said [ASIC] needed to be more "courageous" in pursuing litigation and had relied too heavily on negotiated settlements — known as enforceable undertakings [EUs] — struck between ASIC and companies that have transgressed. …

Professor Fels … said that if a parliament had passed legislation outlawing something, the job of the regulator was to ensure those laws were complied with — not to strike EUs where there had been serious breaches of the law.

Quite again.

On 14 April, it was Bendigo Bank’s Mike Hirst:

Labor's commission "will be a drain on the economy to be honest if that gets up, because I don't think you can look across the banking industry and say there is a culture across the industry that encourages poor conduct …"

"There are examples of poor conduct that have happened that need to be addressed. But to generalise the issue across the industry is a stretch, and to me a royal commission after we have just had a financial system inquiry, would be a waste of taxpayers' money.”

Hirst rightly notes that extant staff incentive structures have to be abolished, but claims that the banks are going to heal themselves. Ludicrous. Sorry Mike but the evidence highlights that it’s an industry-wide problem.

On 16 April, Mike Seccombe in the (subscriber-only) Saturday Paper cited more establishment (“conservative”) figures, all against a Royal Commission. Thus Warwick McKibbin, ANU economist and sometime RBA Board member:

“There are small cases of problems in the Australian system but they’ve all been picked up … It’s also the case that most political and other corruption is picked up not by regulators but by whistleblowers. It is ever thus.”

Seccombe quotes media darling Saul Eslake as saying that a Royal Commission would delay reforms, reforms that the government could address right now. Except, Saul (and Warwick), the problems, not small, haven’t all been picked up and governments and regulators have been determined to avoid serious reform.

On 20 April, Adele Ferguson captured the mood that Turnbull has missed.

The Coalition government has a record of badly misreading the depth of public anger in relation to the banks, and includes poor financial advice, dodgy life insurance, mortgage fraud, bank bill rate rigging as well as broader corporate bribery and corruption. Dragging its heels on reforms, sitting on recommendations for months and having a revolving door of financial services ministers, has done little to engender public trust.…

But it seems since Opposition Leader Bill Shorten vowed to hold a royal commission into the banks, he has tapped into a rich vein of support, and formed a connection with an increasingly cynical Joe Public. … There can be no disputing that the banks and the Coalition has misjudged the situation or depth of concern about bank ethics and misconduct. If they had, they wouldn't be in the current situation.

On 20 April, the Government reacted to Labor’s ascendancy by promising more funding for ASIC. Yet much of this funding is to come from industry itself, a furphy picked up by Ross Jones. What a joke. The government has clearly declined to distinguish ASIC’s distinct roles — provider of a company establishment register (already a good earner) and a watchdog over corporate malpractice.

So the industry should finance its own regulator for best results? ASIC Chairman Greg Medcraft supports the industry funding model. We’ve seen that already with the Financial Ombudsman Service. FOS is corruptly embedded with its financers’ interests. ASIC is already a laggard without further entrenching its structural weaknesses.
In any case, ASIC’s culture is the problem, as acknowledged here. Enhancing ASIC’s funding will not remedy that problem. ASIC senior management is promising a more assertive approach. We’ll believe it when we see it.

Yet again, Adele Ferguson talked plainly on the Coalition’s proposals:

Whether the latest package is enough to convince a cynical voting public that the Coalition is serious about the sector and addressing bank misconduct, will be revealed on July 2 … Until then there will be a lot more politics and a lot more rhetoric. What would put the matter beyond doubt is the blowtorch of a royal commission.

Lest anyone get mildly optimistic, a 21 April speech by CBA CEO Ian Narev reminds us who’s in charge.

Commonwealth Bank of Australia boss Ian Narev has vowed he won't be cowed by a swathe of negative publicity into paying compensation to undeserving dissatisfied customers who are being "unreasonable" and "trying to embarrass" the bank.

Narev prattled on about improving internal procedures, but, on the CBA’s past record of improving nothing except its rapacity, it will be business as usual.

On 23 April, two articles in the SMH, by Ruth Williams and Adele Ferguson, neatly summed up the state of play and the associated propaganda war. Labor had forced the government into action, but the government’s actions are bandaids.

Lack of whistleblower protection remains a key failing. Behind that lack, what is going on behind the scenes that produces whistleblowers. and what is management trying to hide? As Ferguson notes:

The IOOF whistleblower who was sacked after using the company's internal whistleblower policy to reveal serious misconduct, is adamant the latest reforms to ASIC and suite of bank promises is no substitute for a royal commission.

The whistleblower, whose identity is well known to IOOF but who requested anonymity for privacy reasons, is "frustrated with ASIC's obvious lack of motivation". He gave the regulator 59,000 documents almost a year ago … He says he has had little contact except for a few emails and a 35-minute meeting [and then nothing]…

"This is what happens when there's no transparency with the public, especially for whistleblowers," he says. "They just get shafted because it's easier to shaft one person than a billion dollar-plus institution," he said.

On 21 April, in a radio interview, Labor leader Bill Shorten heralded that the banks’ “vertical integration” would be a significant issue on a Royal Commission agenda. And appropriately so.

Cross selling, underpinned by management pressure on staff, is intrinsically anti-competitive and conducive to corruption. The Murray Financial System Inquiry, naturally, found little wrong with the current arrangements, in spite of the inquiry documenting:

… the growing consolidation by big banks in the wealth industry. This includes: large financial groups with a material cross-industry presence accounting for about 40 per cent of total superannuation assets; the five largest platform providers (the big four banks plus AMP) holding almost 80 per cent of the primary financial planner relationships with customers; and 56 per cent of planners belonging to dealer groups that are majority owned by institutions or other wealth managers, or being part of a bank branch network.

Soon after, shadow treasurer Chris Bowen, reiterated Labor’s agenda. The object would be not to mess around on the margin, hoping for banks to reform themselves and the ACCC to keep a watchful eye and act on abuses, but to question vertical integration per se.

It is imperative that divestment of wealth management by the banks be on the agenda. The amalgamation of these sectors (as condoned by the 1996 Wallis inquiry) should never have occurred in the first place.

Interesting that the ultra-cautious Fairfax columnist Malcolm Maiden has given a free kick to Labor’s Royal Commission proposal. Maiden is too kind to the banks and the regulators regarding the supposedly moderate fallout in Australia from the GFC. But bouquets are better than brickbats, regardless of the source.

Lessons from the propaganda war

On the evening of 4 May, the report of the Impairment of Customer Loans inquiry was issued. The inquiry received poor media coverage; ditto the report itself.

The majority report makes many useful recommendations. However, the wishful thinking continues to run deep. The heavy lifting with respect to lender-borrower conflict is to located with the newly created Small Business and Family Enterprise Ombudsman.   

In its previous incarnation as federal Small Business Commissioner, the organisation was government-funded. Now the SBFEO is to be industry-funded! There is no mention of the extant Financial Ombudsman Service, whose industry-funded character has resulted in its complicit and corrupt handling of small business and other complaints. This is a farce.

Kate Carnell has been appointed as head of the SBFEO. Yet from and since her role as ACT Commissioner she has been a political operative and lobbyist. She appears to lack the capacity for the role demanded of the SBFEO in these recommendations.

The key words “Royal Commission” are glaringly absent from the majority recommendations. The Liberal members of the Committee, for a moment supportive (as above), have gone to ground. At the hearings, Philip Ruddock perennially threatened the CBA to “heal itself” or face a tough reaction. The CBA, in the person of legal counsel David Cohen, consistently told Ruddock to buggar off. Now

Ruddock has gone to water.

Shockingly, Nationals John Williams has silently joined the majority. Clearly, the Prime Minister’s office has transparently dictated the central thrust of the report.

It was left to the Labor Committee members to write a minority report, claiming the necessity for a Royal Commission to clear the crowded deck. Rather than this stance being a Party dictate from without, the more probable inference is that Labor Committee members’ experience fed into Shorten’s statement on 8 April. The minority report notes, appropriately:

1.4 We agree with the finding that there has been a persistent pattern of abuse arising from the asymmetry of power in the relationship between lender and borrower. However, we do not agree that the evidence received in this inquiry is sufficient to conclude that there was no widespread or systemic illegal or unethical behaviour by banks.
1.5 Labor members of the committee believe that there is more evidence of banking misconduct that needs to be investigated. Recent media reports highlighting the Comminsure scandal, the tampering of loan documents (revealed on Four Corners, 1 May 2016), various financial planning scandals, bank bill swap rates and other matters indicate that there may be broader systemic issues with the behaviour of banks.

It is depressing to experience the reactions of the Liberal Party MPs, parroting the decided line against a Royal Commission and in defense of the existing regulatory structure save for some beefing up of the latter.

It is depressing to confront that our elected representatives are happy to display, with complete insouciance, their pig ignorance and their bought status. They don’t care. Thus they cannot be trusted.

We are being governed by cowards, charlatans and spivs.

Labor has taken a principled stance, regardless of motives. The public is behind it on this issue. But even if Labor gets into office (and the media won’t help), it has to hold its nerve against the lobbying tsunami that will descend on it.

For once in the cesspit that is the current political arena, is it possible to hope that something positive will transpire?

This article first appeared in three parts on Independent Australia between 23 May & 25 May 2016.

Author: Dr Evan Jones

Last modified onSunday, 11 December 2016 05:33

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