Bank bosses cannot dodge hard questions in Canberra

The banks are right when they privately say Labor’s call for a royal commission is pure populism, as is the government’s demand for their chief executives to front a parliamentary inquiry annually.

After all, industries from construction to mining to private health manage to keep their scandals quiet without business strategies being publicly picked apart by a posse of backbench politicians.

But as the big four banks’ chief executives make their way to Canberra to face the House of Representatives economics committee, they should prepare themselves to address widely held concerns.

New Reserve Bank governor Philip Lowe has already explained to the committee that tougher regulation is the reason banks are not passing official rate cuts to their mortgage customers in full.

That does not explain why mortgage and small business borrowers bear all the pain, while shareholder returns seem sacrosanct. Is it lack of competition?

Nor does it explain the banks’ cynical ploy of lifting a tiny share of their deposit rates for a few weeks to convey a misleading impression that borrowers lose out on lower rates so that savers might gain. The committee also could usefully ask what mercurial force keeps credit card rates perpetually in the high double-digits.

The link between the well-­publicised scandals involving fin­ancial planning and insurance divisions and incentives built into remuneration structures have been largely met by reforms banning commission-based sales, but there are concerns that incentives and sales targets for frontline staff may have a corrupting influence, as seen recently in the US.

Westpac has said it will abolish them while the bank industry has its own inquiry. Yet how aware are bank CEOs of the cultural problem incentives have created?

The major banks each have seven million or more customers. It should be easier for customers to have their complaints heard and dealt with.