David Murray rejects royal commission, warns against politicising banks

No systemic illegality. No crisis. That’s why a banks royal commission isn’t needed, says financial system inquiry head.

Banks are not law-breakers like the mafia or bikies, says David Murray.

The head of the inquiry into the financial system, David Murray, has warned against the “politicisation” of the banking system, declaring there is no need for a royal commission into banking.

“Where is the underlying issue that calls for a royal commission? There isn’t one,” Mr Murray told a seminar in Sydney hosted by the Actuaries Institute of Australia.

“We do not have a systemic breakout of illegality in the banks that is happening all the time to a point where the regulators have lost control.

“We have not had a crisis in the banking system where there has been very substantial economy-wide distress and major loss in employment and personal wealth in the economy.”

Mr Murray, a former chief executive of the Commonwealth Bank, said political interference in the banking system could cause longer term problems for the community.

“Once there’s political interference in a banking system, it tends to loosen the system of default,” he said.

“The political system wants to make it easier for people to avoid default.

“And once you break down the credit process in the banking system, you break the banking system.”

Mr Murray said there was now a situation where “every small mistake (made by a bank) is amplified into a call for a royal commission in Canberra”.

He said the Labor Party wanted a royal commission into the banking system as it wanted to boost the rule of the industry superannuation funds.

“They don’t think the banks should be in wealth management — only they should be in wealth management through the industry funds,” he said.

He said the Financial Sector Union should be “out there defending their members against all this stuff that’s hurting banks and hurting their prospects”.

Mr Murray said all the work done by banks in the community to promote their cause so far had “fallen to nothing because their reputations, according to the media and the political arena, are not intact.”

He said banks made mistakes, as did people in all other industries and “occasionally acted in an unconscionable way with their customers”.

“But we do not have in the banking industry today systemic law breaking as we have had in some other industries like the mafia and the bikies,” he said.

Mr Murray said there was now a situation where it was “very easy to get people wound up politically by saying there is a culture problem” in the banks.

He said Australia already had strong banking regulators and did not need to have bank chief executives appearing for a grilling before parliament.

He said the scheduled appearance by bank chief executives before a parliamentary inquiry in the near future was a “political inquiry, the outcome of which is unknown”.

“Why does the parliament need to do that when they have a highly competent, independent central bank, and prudential regulator in APRA and independent conduct regulator in ASIC?

“Why does the parliament have to do this when they could read the reports from these organisations and understand a lot more about what’s going on?”

Mr Murray said the market share of the banks had increased in the wake of the global financial crisis because other organisations were under pressure.

“It increased during the crisis because it always does,” he said.

“It’s no different to the hardware stores. Because Masters failed, Bunnings will increase market share.”

But he said since the crisis banks’ margins had fallen and their return on equity had fallen “and is still falling”.

“There are significant signs of competition.”

He said the banks had to “win more support from the community and undertake their own programs to do that.”

Mr Murray harked back to the days of the 1890s when there were large-scale collapses in the banking system.

He said this had led to calls for more bank regulation and eventually to moves by Labor in the 1940s to try to nationalise the banking system.

“The argument against the banks in the 1890s was the all the same today — they are not competitive, their profits are too big, they trample on people. It is exactly the same set of arguments.”

He said there was a “very firmly held view in one aspect of politics that banks should never be in the private sector in the first place.”

He said ALP politician Ben Chifley, who went on to become a prime minister, wrote a dissenting report into the royal commission into the banking system in 1937 which became the basis to nationalise all the banks in the late forties.

“When you get into this royal commission stuff and you start to politicise the system, we are well and truly into uncharted history.”

He said Australia was very dependent on foreign capital and needed to have both domestic and international confidence in its banking system.

“To start talking about a royal commission and put these sort of outcomes potentially in play when most of the current account deficit is represented by interest on bank borrowings from offshore and the credit rating is already at risk is not a very smart thing to do at all.”

Mr Murray also criticised the current Corporations Law which he said was discouraging many good people from becoming company directors.

He said that the current law “treated directors like criminals before they started work.”

He said this led to a very defensive culture by many boards.