Banking on more competition

Talking about a royal commission is proof we’re having “the wrong conversation”, bank lobbyist Anna Bligh told yesterday’s Australian Competitive Advantage Forum (sponsored by this newspaper and BHP). Ms Bligh, a former Labor premier, is dead right. The necessary conversation is one about the role of a competitive banking sector in an entrepreneurial and prosperous economy; it’s also about the consumer benefits of technology-driven innovation in banking and finance.

Instead, Scott Morrison is having to stage urgent meetings with banking bosses as the government tries to hold the line against this latest recrudescence of populist bank-bashing. Much of the blame attaches to Bill Shorten and his reckless rhetoric; the Opposition Leader has lashed out at “greedy” banks with “bloated bottom lines”, with little thought for the countless ordinary Australians whose financial welfare depends on well-managed banks.

Whether a royal commission or a commission of inquiry, a one-off inquiry into the banks is likely to be at best pointless and at worst destructive. Pointless because banks are subject to continuous scrutiny by a raft of agencies, chief among them an ever more powerful Australian Prudential Regulation Authority. De facto intervention in the appointment of senior executives and their decision-making has the potential to make bank managers too wary of risk — and this within a system already biased towards home lending at the expense of supporting business investment.

Overseas investors and funding sources have noted the imposition of a $6.2 billion major bank tax just because of a political judgment by the Turnbull government that voters would shed no tears. The perception of sovereign risk can only deepen if this is to be followed by a high-profile inquiry into a successful banking sector without any evidence of systematic wrongdoing. Westpac chairman Lindsay Maxsted warned yesterday that the royal commission clamour could lead to higher funding costs, which would flow through as higher interest rates.

The government, not blameless itself, could do a better job explaining why strong banks serve the national interest. This would steer debate towards the economy, where the Coalition should have a competitive advantage. Yesterday NAB chairman Ken Henry recalled the 2008 collapse of US bank Lehman Brothers, his point being that Australia avoided the full horror of the global financial crisis thanks in part to our secure banking system. Former prime minister John Howard picked up the same thread yesterday, rejecting a royal commission as “rampant socialism” and saying “our banks demonstrated in 2009 that they were among the best-run, the most prudentially supervised, and the most well-capitalised in the world”.

And this is of immediate interest not only to bank shareholders but also to the many Australians whose superannuation investments are exposed to the banking sector. New competition — from tech firms that already are household names and as yet unknown fintech start-ups — may eat into the profits of the big four but there are likely to be consumer dividends in the form of better, more transparent financial services. Regulators will have to be nimble to strike the right balance between stability and competition. Sometimes the conversation will not be so comfortable for Ms Bligh’s constituents but it promises to be highly productive for the national economy.