Lenders say they asked for royal commission in bid for stability
AUSTRALIA’S peak bank lobby group says the industry has decided to support a royal commission to ensure our banks do not become international “pariahs”.
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AUSTRALIA’S peak bank lobby group says the industry has decided to support a royal commission to ensure our banks do not become international “pariahs”.
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A commission is now necessary as a circuit breaker to continuing instability created by “political horse trading”, Australian Bankers’ Association chief Anna Bligh says.
Writing exclusively for Business Daily today, Ms Bligh says such instability could ultimately push up the cost of mortgages and other loans.
Her comments come after Prime Minister Malcolm Turnbull on Thursday unveiled plans for a royal commission into misconduct across the financial services sector.
Ms Bligh says the instability buffeting the sector could undermine the reputation of Australian banks globally, leading to a higher prices for the funds they borrow offshore to lend out at home.
“Anything that makes that funding more expensive or less available can ultimately be passed through to the cost of mortgages and other loans.”
The chief executives and the chairs of the major banks said on Thursday they had written to Mr Turnbull on Tuesday requesting a “properly constituted inquiry” into the financial services sector in the face of widespread calls for a commission or another sweeping inquiry.
Ms Bligh says a commission is the “least bad choice”, and the government’s model is better than a “cobbled-together inquiry designed by minor parties, disgruntled backbenchers and fringe elements of the parliament”.
Such an inquiry “could take a cricket bat to the savings and superannuation of millions of ordinary Australians”, she says.
Shares in all the major banks fell after the royal commission was announced but recovered in later trading, with National Australia Bank ending the day 0.03 per cent higher at $29.59.
Westpac finished 0.03 per cent lower at $31.47 while ANZ closed down 1.1 per cent at $28.46.
The Commonwealth Bank, which has been the subject of a succession of sagas over errors and misconduct among staff, bore the brunt of the market’s concern over the commission. Shares in the CBA fell 1.9 per cent, closing at $79.43.
It came after UBS banking analyst Jonathan Mott said the commission would be “expensive and distracting” for the major banks, likely costing them $50 million to $100 million each.
“It is difficult to predict what the final recommendations will be,” Mr Mott said in a note for investors. “However, we believe it is in all political parties’ interest for the recommendations to be material and lead to cultural change.”
Other banking insiders said the costs could exceed the hundred-million-dollar mark for each bank.
One industry source said he expected former chief executives — including some of Australia’s best ever remunerated bosses — were likely to be called to appear, ANZ’s Mike Smith, Westpac’s Gail Kelly and the CBA’s Ralph Norris among them.
Mr Smith was paid $88 million over eight years and Mrs Kelly $11.8 million in her final year alone.
Mr Turnbull said the commission would review the banking, pension and financial services industries. It would investigate how financial institutions have dealt with cases of misconduct in the past, and whether those cases exposed cultural and governance issues, he said.
The commission is required to report back to the government by February 1, 2019, but industry experts noted that commission timetables could be “blown out” and extended as new matters arose.
Smaller lenders and superannuation funds questioned why they had been brought into the scope of the inquiry.
“A plethora of never-ending inquiries, reviews and regulation is at odds with maintaining a system that is serving Australians tremendously well,” Association of Superannuation Funds of Australia chief Martin Fahy said.
The Customer-Owned Bank Association — which represents not-for-profit lenders — said it accepted the need for a commission. However, spokesman Daniel McDougall said, the focus of inquiry “should be where the misconduct has been prominent, which is the major listed banks and their subsidiaries”.
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