The interim report of Royal Commissioner Kenneth Hayne on the crimes and greed of the Big Four banks underlines the urgent need to radically overhaul the banking and financial system.
The report, published on September 28, showed the banks’ unmitigated greed. Even treasurer Josh Frydenberg was forced to admit that the commission was “an important revelation of misconduct and inappropriate behaviour through the system”.
The federal Coalition government under former prime minister Malcolm Turnbull was forced to establish the Banking and Financial Services Royal Commission in December 2017, after voting down motions from the Greens and Labor for such a commission, more than 30 times.
Back then, Treasurer Scott Morrison described the calls for a royal commission as “populist whinge”. Now, as PM — and as evidence from the victims of the banks’ unmitigated greed is clear for all to see — Morrison says he should have acted sooner.
Understandably, anger at the banks and the collusion of governments and so-called regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA), is growing.
The reason is easy to understand. As Hayne noted: “Much, if not all, of the conduct identified in the first round of hearings can be traced to entities preferring pursuit of profit to pursuit of any other purpose.”
Hayne described the financial advice industry as being riddled with dishonesty.
“Giving advice that does not serve the client's interest, but profits the adviser, is equally dishonest … No matter whether the motive is called ‘greed’, ‘avarice’ or ‘pursuit of profit’, the conduct ignores basic standards of honesty,” Hayne said.
“The root cause for what happened was greed — the greed of both licencees and advisers.”
Hayne’s report focuses on summarising the malpractices revealed in the first round of commission hearings. It does not include any direct recommendations for action.
Labor has now called on the Coalition to extend the time for public hearings beyond the end of 2018, with Hayne due to hand down the final report in early 2019.
Socialist Alliance national co-convenor Susan Price told Green Left Weekly that tinkering at the edges, such as tightening up regulations, will not solve the key problem.
“Making the banking sector democratic and transparent is the only hope we have of tackling the problem — the private ownership of the financial institutions which control our wealth,” Price said.
“The royal commission hearings have conclusively shown the scale of the banking industry’s obscene greed: it has been stealing billions of dollars of ordinary workers’ funds. Yet, this has all been legal.
“A publicly-owned banking sector, under the direction of a board of elected delegates and community representatives, could make decisions in the interests of the community.
“The handling of deposits and loans should be geared to meeting ordinary people’s needs, and the best people to oversee this process are community representatives who understand first-hand the needs of first-home buyers and small businesses.”
The Labor governments of Bob Hawke and Paul Keating privatised the Commonwealth Bank in the 1980s and ’90s. This disastrous move, completed by John Howard Coalition government, is the background to the social calamity we are seeing today.
If the financial resources of Australia’s biggest bank had remained in public hands, it may have been possible to combat the crimes of the private banking sector much earlier.
“With housing increasingly becoming unaffordable for many, the banks need to be forced to adopt a socially responsible loan policy for first homebuyers and small businesses including farmers,” Price said.
“A substantial government-owned bank could assist with extending public ownership to other sections of the banking and financial services industries.
“The Greens’ proposal for a People’s Bank, which would offer low-cost mortgages and other basic facilities, could help in the push for a publicly-owned banking sector.”
New Zealand has shown the way with its government-owned Kiwibank, a subsidiary of the NZ post office, which it set up in 2002. It offers basic financial services with lower fees and better services than the private banks.
The Greens have also said they favour legislation to force the banks to split their banking and wealth-management arms.
Former Australian Competition and Consumer Commission (ACCC) chairperson Allan Fels has backed the Greens’ call after damning evidence at the commission and a series of Fairfax media investigations showed that financial planning arms are at the core of bank misconduct.
Three of the Big Four have moved to head off more criticism by hiving these sectors off: the Commonwealth Bank, National Australia Bank and ANZ have announced they will either de-merge or sell their financial planning businesses.
Whether the royal commission decides to recommend criminal charges for executives and tighter restrictions on mortgage brokers remains to be seen.
It is expected to recommend greater regulatory powers for ASIC and APRA. Price said these reforms, on their own, would be insufficient.
“In the end, they will not fix the basic problem — the privatised financial system,” she said.
“The royal commission has exposed a toxic culture of corporate greed and criminal extortion. To really resolve this, we need the banks and their assets — which are really ours — to be controlled by us.”
Socialist Alliance says banks must work for us
The Socialist Alliance supports and campaigns for:
* Put the big banks into public hands. Nationalise the Big Four under workers’ and community control. Full compensation to ordinary small investors.
* Place the banks’ huge assets under public ownership, to be used for the good of the community and the environment. These funds could be used to build public works and fund public health, housing, education and transportation.
* Executives would not be paid millions, jobs would stay, interest rates would not be manipulated for profit and fees could be cut.
* Banks must provide accessible loans to first home-buyers, small business and small farmers at low interest rates. An end to evictions of home-buyers and small businesspeople who fall behind in payments; reasonable repayment schedules must be arranged.
* Government assistance to communities for the formation and maintenance of cooperative banks.
* Major banks to be mandated to invest in socially useful public infrastructure and to divest from fossil fuel and environmentally damaging industries.
[Read the Socialist Alliance’s full policy on the banking industry.]