Published by Australian Financial Review, Thursday 6 October
This week we have seen some important advances in the interactions between politicians, the media and the banks. While it may not have seemed very productive, with a fair bit of grandstanding and a lot of balls played with a dead bat, some paths through the gloom have emerged.
Banks have provided lots of media copy over the last couple of years. And every time a media story emerges with some mis-selling, bad advice or market misbehaviour politicians feel obliged to have yet another inquiry, investigation, hearing or commission. Then in turn virtually every one of these suggests that another regulation is needed to solve the particular problem under analysis. So we finish up with yet more red tape.
This accumulation, of inquiry after inquiry and regulation layered upon regulation, has lots of costs. Each time there is the direct cost to the public purse in running a process, and each time the financial institutions involved divert lots of effort in understanding the issues, the risks and the process as well as preparing submissions and for hearings. By my count there have been at least nine other major inquiries into the sector recently – into small-business finance, banking competition, the performance of ASIC, credit card interest rates, agricultural managed investment schemes, impairment of customer loans, into ethical standards, into financial advice and of course the Harper Inquiry. Over the top of this we have had the once-in-a-decade Financial System Inquiry. Cumulatively we have enough recommendations to implement to keep hundreds of public servants in jobs for years.
The hope for some cut-through does not lie with yet another major inquiry. It seems quite clear that a Royal Commission would be a waste of time, of money and would divert the energies of lots of people who could be doing more for the nation than raking over well-known issues.
The idea that we should put in place a Banking Tribunal could actually provide a neat solution to the core problem. If bank customers could go to a tribunal which was able to address their concerns quickly and seriously, there would be a lot fewer spectacular news stories about bank mistreatment of customers. Without the “got-you” stories in the media there would be less pressure on politicians to respond. Less pressure on politicians in turn would reduce the pressure for ad hoc regulations being proposed and implemented.
It seems clear that the banks and other financial institutions should all support the idea of establishing a tribunal. They are likely to have adverse findings made, and to pay more compensation more quickly than at the moment, but the cost is likely to be much smaller than now with the ongoing diversion of staff time to the regular flow of inquiries.
The second encouraging element to emerge in the last few days has been the potential implicit in the hearings by Parliament’s Economics Committee. This year was part sideshow and part serious inquiry. Many of the politicians had not really done enough homework or thought seriously about the issues. Over time, however, this will change.
After a few years of discussion about how the financial system works, and by gaining experience, we may well develop a group of politicians who are genuinely educated about the sector. We should see serious long-term benefits from this, as members of both sides come to grips with the importance of wholesale funding to the banking sector, on the complexities of responding to changes in the cash rate, on the intricacies of giving advice, on the challenges of technological change and the other major issues banks have to deal with.
The banks are very important to the operation of the economy. They are highly regulated already by a world-class set of regulators. The central issues for the politicians to come to terms with should be those focused on the efficiency with which the financial system channels funds to the most productive outlets.
While failures in customer service make good theatre, the country will be better for a better educated and more widely engaged panel of politicians who engage in the deep issues of financing our economy. Politics will always play a role, and politicians will always play up to the media.
Let us hope, though, that this week has given us signs of how a better system might be developed. The idea of a tribunal could be an important factor in de-escalating customers’ issues in the public debate. Without the immediate media glare, politicians will be able to use the public hearings to address the nation’s issues seriously and effectively.