The problem with bank ‘scandals’

It’s often the simple and direct questions that provide the most illuminating answers.

Wednesday’s grilling was much sharper than the prior day. Picture: Kym Smith/ AAP.

The big problem with the banks debate in this country is that it’s framed around “scandals”.

As expected, Labor Party members of the House Economics Committee hunted Commonwealth Bank boss Ian Narev on Tuesday, enlisting financial planning and CommInsure victims in a fruitless search for a “gotcha” moment to back Bill Shorten’s repeated call for a royal commission.

A valuable lesson was learned, because this morning’s grilling of ANZ Bank bosses Shayne Elliott and Graham Hodges was much sharper, with more emphasis on solutions than past misbehaviour.

It’s often the simple and direct questions that produce the most illuminating answers.

When the National Party’s Kevin Hogan asked Elliott why he thought he was in the room, the ANZ chief’s answer was brutally honest.

“As an industry we lost touch with our customers; we became too internally focused,” he said.

The bank, he said, also wanted to explain what it proposed to do about it.

To be fair, Liberal Party MP and committee chair David Coleman tried to set the right course on Monday.

He probed Narev about measures to stiffen competition, including adoption of account-number portability, the introduction of rate tracker mortgages that move in line with benchmark interest rates, and a regulatory “sandbox” proposal administered by the prudential regulator to lower barriers to entry.

Narev supported the principle of greater competition, with Elliott even more forthcoming today when Coleman repeated his line of questioning.

The ANZ chief said there was a place for rate tracker mortgages, even though they weren’t currently on the market.

The problem, he said, was the premium pricing that the product would attract.

If the interest rate were pegged entirely to the benchmark rate, it would introduce a funding risk for the bank because ANZ relied on a mix of funding sources, some of which were not linked to official rates.

Ellliott said he wasn’t opposed at all to account portability or open data, but stressed that data security was paramount.

He also said a tribunal dedicated to resolving customer issues, and funded by the banks, was a good idea.

Labor MPs clearly believe that the banks’ generous returns on equity by global standards are a function of poor competitive intensity.

Pat Conroy hammered this line this, with Elliott agreeing in principle that ROEs in a competitive market should be slightly above the relevant cost of capital.

The problem for Labor is that industry ROEs are already falling due to regulatory reforms, weak credit growth and a turn for the worse in bad and doubtfuld debts.

In the half-year to March, ANZ’s ROE was 12.3 per cent, down from 14.5 per cent a year ago.

How much lower does Labor want this to go? And are they prepared to compromise the banks’ ability to fund the economy?

Richard Gluyas’ next Four Pillars column is in Thursday’s paper.