Banks cop the by-election flak

The banks were already on the nose but last week’s by-elections ensures they’re now the whipping boy for both sides of politics.

Treasurer Scott Morrison. Picture: AAP

The big banks are on the nose already but last weekend’s by-elections have ensured they will be a whipping boy for both sides of politics as we head toward next year’s federal elections.

The danger in this for investors is a real risk of overregulation.

Treasurer Scott “cry me a river” Morrison was in full flight at today’s luncheon address in Sydney, whacking the banks on the head in what some say was a harder speech than originally intended because of the by-election results.

The ALP was seen to be successful in running the line that company tax cuts were no more than a handout to the big banks.

Next week’s CBA result will be a shocker, the only issue is just how bad and how much of a slog it will be to set up for future growth.

The bank reported a profit of $9.8 billion last year and, according to UBS, it won’t match this number for the foreseeable future, given it is selling off its wealth division.

The APRA committee said the bank had underspent on compliance by up to $500 million, so what better time to ramp up this spending.

Revenue will be under pressure due to higher funding costs and interest rate and fee cuts across the board will simply add to the pain.

Then there is the big unknown which is an increase in loan arrears which, so far, has been a non-event but was flagged last quarter by the bank as a potential issue.

Politically its not a bad time to have a bad financial result.

Today’s Productivity Commission report has some good ideas like increased data sharing so customers can get access to their own data which can be passed on to competitors.

Anything that lowers the barriers to entry is good for increasing competition.

As is the concept of adding the ACCC to the Council of Financial Regulators (CFR) along with a mandatory release of the council’s minutes as happens with the RBA.

The council is comprised of the Treasury, the RBA, ASIC and APRA with no one speaking up for competition.

The logic here is sound because the system is safe but that is not the same as performing to maximum efficiency.

The PC’s call for a bank integrity officer is a nonsense just another unnecessary layer of management.

The idea being the banks will always have conflicted pay so someone who reports to the board should monitor conflicts, tell the board about it and, in that way, open lines of communication.

In concept this sound good but surely it can be accommodated within the present structures.