Australia's banks dodged the financial crisis. Then they got complacent
Australia's banks dodged the financial crisis. Then they got complacent Banking Australia's banks dodged the financial crisis. Then they got complacent
Seeds were sown for scandals and inquiries in the aftermath of 2008, says a former top banker
When Australia emerged from the global financial crisis unscathed, David Bell had more reason to smile than most.
Bell, as the chief executive of the Australian Bank ersâ Association for nine years, helped lead the sector through its most turbulent period in recent history.
Australiaâs banks were heaped with praise when they landed feet-first from the financial chaos, lauded for avoiding the hugely risky sub-prime investments that proved so irresistible across the rest of the developed world.
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Now, almost a decade on, Bell believes that success may have laid the seeds for Australiaâs current banking crisis, a confluence of scandals that have forced high-profile resignations, sent share prices tumbling, and prompted criminal charges and a $700m penalty.
You donât realise itâs happening to you until itâs too lateDavid Bell
In an interview with Guardian Australia, Bell said a sense of complacency developed in post-financial crisis Australia across the banks, government, and regulators.
âItâs one of those classic judgments of hindsight â¦ itâs that boiled frog syndrome where you donât realise itâs happening to you until itâs too late,â he said.
âLooking back, I think thatâs possibly an explanation. We did well â" the paradox is that the sense of complacency developed, not just for the banks, but with the regulators, the policymakers, the industry association.â
Itâs a view shared by others who have sought to trace the sectorâs path to the current carnage.
The former treasurer Peter Costello has spoken of how the financial crisis made bankers feel like infallible geniuses. It was this belief that led them to lose their way and venture into peripheral profit-making areas, outside of bankingâs core business.
Some of these bankers started to believe it was due to their genius, they should take the rewardsPeter Costello
âIn the aftermath of [the crisis] some of these bankers started to believe it was due to their genius, they should take the rewards and they took the eye off the ball, which was the customer,â Costello told the Australian in May.
Costello believes the reputational damage being done in the current royal commission is greater than anything the sector faced in the global financial crisis.
Itâs hard to disagree. Scandals are now being exposed on a weekly basis, either via the press or through the forensic questioning of the royal commissionâs counsels assisting, Rowena Orr and Michael Hodge.
The damage is immense. Take AMP, for example. It is now facing four class actions as a result of its fee-for-no-service scandal and the subsequent misleading of the corporate regulator. The wealth managerâs chief executive, Craig Meller, and chair, Catherine Brenner, have both been forced from their roles. About 30% has been wiped from the companyâs share price in the past three months.
The money laundering scandal at Commonwealth Bank has cost the countryâs biggest bank a $700m fine and also its chief executive, Ian Narev, who announced plans to stand down days after Austrac revealed the litany of violations in August 2017. This week the Australian Competition and Consumer Commission charged executives at ANZ, Citigroup, Deutsche Bank for cartel-like behaviour over a capital raising in 2015.Super funds treat customers with contempt? That's putting it lightly | Greg Jericho Read more
The revelations show no sign of abating. The ABC last week reported on the way that Macquarie Bank was classing everyday Australians as âsophisticated investorsâ, allowing their money to be used in high-risk investments, and charging huge fees in the process.
On Monday, Guardian Australia revealed how BT Financial Group, Westpacâs wealth management arm, discovered it was missing hundreds of files for customers it was supposedly providing with f inancial advice. In what one insider described as a âcover-your-arseâ exercise, BT then scrambled to either recover or recreate customer files to comply with financial advice laws.
Fairfax revealed CBAâs Dollarmites scandal, and reported that one of Australiaâs biggest mortgage brokers, Mortgage Choice, was facing a revolt from franchisees over its conduct.
Scandal is becoming a near-permanent feature of the sector. Jeff Morris, the CBA whistleblower, wrote in Fairfax on Wednesday that Australia was reaching âpeak banking badâ.
So is the sector in free-fall? When and how will the constant stream of crises end?
Thereâs not a lot of alternatives we can turn toStephen Koukoulas
The University of Sydneyâs human rights law chair, Prof David Kinley, believes the banks need to return to their role as the âeconomyâs servant not its masterâ. Kinley launched a new book this week titled âNecessary Evil: How to Fix Finance by Saving Human Rightsâ. In it, he argues that banks have developed an unnerving culture of exceptionalism, which fosters a kind of nonchalance about the impacts of their behaviour.
âThe world of finance has become so confident of its role as the Ã©lan vital of the economy that it seldom need concern itself with the exogenous consequences of its actions, up to and including the possibility of its own collapse,â he wrote.
To fix this, he recommends, banks must put the notion of corporate social responsibility at the centre of their practices.
The managing director of Market Economics, Stephen Koukoulas, believes punishments need to be placed more squarely on bank leadership.
Koukoulas said simply fining banking institutions, while necessary, did little to deter misconduct.
âWeâve seen massive fines in the UK and the US, tens of billions of dollars in fines. Look at them now, theyâre doing fine. Itâs 12 months profit, itâs six months profit. Itâs neither here nor there,â he said.
âBut the individual who put the bank or the economy in that position is still there.â
He predicts there will be a period of self-imposed change in the sector, particularly around the payment of bonuses and commissions. Some signs of change are already emerging. Thereâll also be a period of further regulatory change, Koukoulas said, when the royal commission delivers its report.
They should stick to banking and avoid some of the peripheral things they might be involved inDavid Bell
He said customers may drift away from the big four, but that trend will be tempered by their market dominance and the cost and effort required to change.
âThereâs not a lot of alternatives we can turn to,â he says.
Bell is cautious about over-regulating the sector. He says too much intervention will end up hu rting consumers and small business, who will struggle to get finance when they most need it.
He, like Costello, believes the best way to repair the damage is for banks to return to their traditional business: borrowing, lending, and managing the risk in between.
âI think there is almost a need to go back to the basics,â he said. âBanks should actually focus on their customers, and doing the right thing by their customers. They should stick to banking and avoid some of the peripheral things they might be involved in.â
Itâs a process that has begun already. Many banks have exited the wealth management space and promised wholesale overhauls of their bonus schemes and performance targets.
Whether they have learnt the lessons that went unheeded after the GFC remains to be seen.Topics
- Australian economy
- Business (Australia)
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