Banks royal commission becomes an election issue

Is Bill Shorten a populist with a thought bubble, or is Malcolm Turnbull shooting from the hip and attempting to defend the indefensible?

Last year in June Labor voted with the government to kill a Greens motion for a royal commission into misconduct in the banking and financial services industry. As Adele Ferguson said in the AFR, then came NAB, IOOF, CommInsure, allegations of bank bill swap rate rigging and a multitude of smaller scandals.

Labor announced last Friday that in government it would set up a royal commission.

The government claims a RC would damage the reputation of the banks, but Ferguson says it couldn’t get any worse. In fact as the AFR reported earlier:

Global credit rating agencies are on alert about the rising cost of conduct breaches at Australia’s banks.

Interest-rate manipulation, claims payments problems in life insurance and poor financial advice in wealth management businesses prompted Fitch Ratings to highlight the “increased regulatory scrutiny on conduct and culture” facing Australia’s banks.

I’d tend to agree with ACTU secretary Dave Oliver who said the banking and financial sector:

“has lurched from scandal to scandal, eroding public confidence in what should be the foundation of all economic activity in this country.

“There is mounting evidence of systemic corruption, poor governance and a lack of accountability” in the sector. “A royal commission would get to the bottom of those issues and renew trust,” Oliver said.

Turnbull says it’s a thought bubble and Labor has no idea what the RC would cover. Actually as Michelle Grattan reports, Labor has an outline. Chris Bowen said the royal commission would look at:

how widespread instances of illegal and unethical behaviour were in the industry;

how the financial services industry institutions understood and gave effect to their duty of care to consumers;

how the culture, ethical standards and business structures of Australia’s financial institutions affected the behaviour of their employees and their operation in financial markets;

whether Australia’s regulators were well equipped the identify and prevent illegal and unethical behaviour in the sector, compared with experiences overseas; and

any other issues that came to light during the inquiry.

Detailed terms of reference would be drawn up in government. The inquiry had been costed at A$53 million over two years, Bowen said.

The inquiry would cover banks, insurance providers, and superannuation funds, but Bowen made it clear it would not be an inquiry into broader corporate Australia.

Scott Morrison and Turnbull have been saying that we already have a “tough cop on the beat”. Bernard Keane at Crikey (paywalled) asks how can ASIC police the banks when it has been gutted? Labor already fiddled at the edges, but in the 2014 budget Hockey cut $120 million over five years, and 14% of its staff. Between now and 2018-19, ASIC faces a further 9% funding cut compared to if its funding had been held steady in real terms.

An effect of this is that ASIC says they can no longer undertake the proactive surveillance that they did previously. They increasingly rely on the public to tell them where the problems are.

One benefit of a royal commission is that it can review the role and resourcing of the regulators, and issues like vertical integration in financial institutions, where banks own financial planners.

The claim is that only a royal commission can restore public trust and change the toxic culture.

Last year Nationals senator John Williams voted with the Greens.

Now there’s a growing bunch of dissenters within:

Nationals MPs John Williams and George Christensen are strongly backing the calls for a royal commission, while their colleagues Luke Hartsuyker and Ken O’Dowd have signalled they are open to the idea.

Mr Hartsuyker, who was dumped from the frontbench in the latest ministerial reshuffle, told Fairfax it was “definitely something that should be considered”.

Mr O’Dowd said he was “open to the idea” but wanted to see more evidence to show whether it was needed. He said he was worried about the potential for an inquiry to damage the reputation of the nation’s biggest banks overseas.

Another Government MP, Liberal backbencher Warren Entsch, is also in favour of the probe, arguing it is critically needed.

Now Philip Ruddoch has released a statement saying: “The banking industry has serious issues it needs to address if it wants to avoid a royal commission”. His intervention is particularly significant because he sits on a joint parliamentary committee which is due to report on investigations into corporations and financial services.

So who has misjudged on this issue, Shorten or Turnbull?

7 thoughts on “Banks royal commission becomes an election issue”

ALP on a winner with this – particularly given Coalition dissent with their leadership on this issue. Gibes shorten political cover

As I heard it Labour voted against the Greens proposal because a. only the executive can order a Royal Commission, and b. from Labour’s perspective a Royal Commission conducted by an Bank Apologist government is hardly going to get at the core issues of deep corruption and mismanagement.

So the Greens get the Kudos for proposing the action, Labour delay it till a time when holding the action will actually have a real impact. It would be better if the Greens stopped point scoring at Labours expense.

Malcolm’s description of the royal commission as “a distraction” came across as an arrogant response from an ex banker that will irritate those who have had unfortunate experiences with banks or have friends that have suffered.
It was similar to his arrogant dismissal of Labor’s moves on negative gearing.

The ALP has never done point scoring against the Greens?

Of course they have, but we expect,…no…hope for, a better strategic approach to issues that can lead to real change from the Greens.

Peter Ryan at The Drum clearly favours a royal commission. He points out that back in 2014 the Senate Economics Committee took a look at ASIC and found it a “timid, hesitant” regulator. The report was really quite scathing.

Michael Brull at New Matilda takes us through the whole political history and wonders why Shorten changed his mind.

The implication is political short termism. He doesn’t think Shorten has the balls to really take on the banks after a Royal Commission.

Bernard Keane at Crikey thinks the government will chuck a few millions ASIC’s way:

The test will be, however, whether ASIC’s funding is restored to the levels bequeathed by Labor, or it gets a token few million to generate the appearance of additional regulatory firepower. If you’re having a punt on budget outcomes, put a few bob on the latter option.

He’s scathing about ASIC:

But the problem is that ASIC was already dysfunctional before the government’s cuts kicked in. This is a “regulator” that was described by a Senate committee report by Labor, the Nationals, the Greens and independents in 2014 as “a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC’s concerns or intervention” and one that “has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers”.

This is the regulator, remember, that was so sloppy that when the Commonwealth Bank itself advised ASIC that it had breached an enforceable undertaking it had given the regulator, ASIC staff simply lost the letter and never bothered to follow up. That was after repeated warnings by whistleblowers about the Commonwealth Bank’s wealth management arm defrauding customers, forging signatures and otherwise ripping them off. And remember, that was in an industry where ASIC said it already had “long-standing, publicly-expressed concerns”.

He says that the government may find that the voters carry the biggest truncheons.

“Mr O’Dowd said he was “open to the idea” but wanted to see more evidence to show whether it was needed. He said he was worried about the potential for an inquiry to damage the reputation of the nation’s biggest banks overseas.”

Ken O’Dowd, Member for Flynn, is a former publican: what an extraordinary thing for him to say. Didn’t he ever engage in conversation with his customers?

As for a Royal Commission or other inquiry damaging the reputation of Australia’s banks, that is nonsense because it is based on the naïve assumption that major corporations that might be interested in the standing of such banks do not have sections or departments with a competitive intelligence function – and so would already know much of what would be revealed in a royal commission.

Hey, now there’s an idea – or a thought-bubble – why don’t we save the taxpayers a lot of money and pay some major transnational corporations to send us copies of their files about the Australian banking sector: its blunders, its crimes and its scoundrels?

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