Why wait for the final royal commission report?

The absence of competition in the banking industry is one area Josh Frydenberg could act on immediately.

New treasurer Josh Frydenberg meets with APRA chairman Wayne Byres. Pic: AAP

Amid the myriad words in reaction to the interim draft royal commission report one key discussion missing is the absence of competition in the industry, which is one area the federal government could act on immediately

Treasurer Josh Frydenberg has the Productivity Commission report on the industry and surely doesn’t need to await the final Hayne inquiry report before moving.

Politicians are quick to make a noise and say how bad everything is, but not so quick in doing something about it.

Steps are being taken to open access to data which will help, but the industry structure needs opening.

Josh, your prime minister did nothing when he was treasurer so maybe you can be different.

As royal commissioner Ken Hayne noted, the frameworks are in place - we just need someone to act on them.

By Christmas Frydenberg will have the interim report from Ken Hayne, the PC report on superannuation and banks and, if he had any sense, a capability review on the Australian Prudential Regulation Authority.

Government lays out the playing field, sets the rules and ensures they are enforced and on the field there is competition to deliver the services.

The Big Four banks are a cosy club regulated by another insiders club - the Council of Financial Regulators.

The Productivity Commission wanted a new voice included in the council - the Australian Competition and Consumer Commission. On the advice of the council this was rejected by the government. Not explicitly, but nothing has happened.

That is, the club said “no” to changing the club.

The big banks are the only businesses in Australia which operate with the complete freedom of knowing they cannot fail. The government will bail them out.

That is a powerful benefit when making decisions enjoyed by no other company.

No-one can buy more than 15 per cent of a bank without government approval, which is another benefit enjoyed by no other company.

That means the big banks are takeover proof, backed by the four pillars policy.

That too is a sacred right enjoyed by no other company.

Sadly the big banks have abused these privileges.

By rights, if the banks are to operate in a cosy club then they must be held to higher standards.

But they are not.

The ACCC compares it to synchronised swimming - highly regulated co-ordinated action with all the rules coming from the same house.

That system has clearly failed us.

The system protects the banks who, at the same time, are motivated by showing off how much money they make. That is a fundamental conflict which has proved to have gone badly wrong.

If we want safety at all costs let’s have it without the bragging rights over who’s got the biggest return on equity.

Regulation is based on safety at the expense of competition and that has failed us.

APRA needs a revolution, led either by Wayne Byres or a new chief, and a starting point would be the capability review that was recommended by the Murray inquiry.

That review, like the ASIC review, would be a performance review.

APRA is a master at internal reviews, as in the series of studies it is doing on superannuation.

The royal commission has proved effective because it has shone a light on the misdeeds of banks and the government needs to do the same on the regulators, while opening the doors to competition.