The Treasurer should have stolen this idea from Labor

In a week of almost unrestricted bank bashing, including by Scott Morrison, an obvious question springs to mind: would the banks have been better advised to persuade this government to bring on a royal commission into their practices? Yes, I know it is Labor’s idea, but the Coalition government doesn’t seem to have any problems in stealing Labor’s ideas.

At least if this government had brought on a royal commission, it could have determined the terms of reference and carefully selected the commissioner. It’s unlikely Labor would have called another.

By this stage, the royal commission would be over and the government would be working its way through the recommendations. We wouldn’t have had to endure years of Labor banging on about the need for a banking royal commission. It would be done and dusted.

My hesitancy with having a royal commission, apart from the prohibitive cost and the picnic thus created for the legal profession, was the unworkability of this form of investigation to answer the key question: to what extent does the conduct of Australian banks meet the legitimate expectations of customers while maintaining the financial stability of the system?

The trouble with anecdotes about customers being treated badly is that they are just that. And royal commissions essentially deal with anecdotes rather than provide the means of investigation to make valid generalisations.

To be sure, there have been some egregious examples of bad behaviour by some bank workers in relation to financial planning advice. Mind you, it’s not just the banks. Moreover, the worst (and most self-seeking) advice didn’t come from the banks but stand-alone firms headed by charismatic and seemingly credible shonks, although some of the banks were accomplices. But all this is sometime in the past.

There also have been stories about legitimate claims being denied by bank-owned insurance companies. However, the extent of this practice is unclear and probably always was overstated by self-serving journalists making big claims without real evidence. And again, let’s face it, there are plenty of independent insurance companies that play hard ball when it comes to paying out.

There was also the example of the takeover of Bank West by the Commonwealth Bank, which triggered several complaints from borrowers who felt they had been badly treated as a result of the transaction. There was even a parliamentary inquiry into the matter, but it turned out the complaints were largely baseless.

That’s one of the problems for banks: when things turn sour, customers are very often reluctant to blame themselves, or bad luck, and would rather blame a third party. Banks are an obvious target.

So why do I say that we would have been better served if there had already been a banking royal commission? The alternative has been a veritable avalanche of new investigations, new regulations, new bodies, new levies and now the biggie, the big bank levy introduced in the budget.

For a government that was supposed to be committed to reducing red tape, it has been quite extraordinary. The compliance costs for the banks — mainly the big banks but also other financial institutions — must now run to several hundred million dollars.

It is almost impossible to list the intrusive and costly new measures introduced, mainly by Revenue and Financial Services Minister Kelly O’Dwyer, who is more than happy to bully and threaten bank executives. Additional resources have been provided to the Australian Prudential Regulation Authority and the Australian Compe­tition & Consumer Commission. The ACCC is undertaking an industry study of the banks and will be overseeing the impact of the big bank levy. The Productivity Commission has been called on to inquire into the competitiveness of the financial sector.

A new body, the Financial Adviser Standards and Ethics Authority, has been established and will be funded by the large financial institutions. Another new body will provide restitution for clients given poor financial planning advice, again funded by the large ­financial institutions. This is notwithstanding the fact those ­financial institutions would directly compensate any adversely affected clients of their own.

Small business ombudsman Kate Carnell has been conducting an inquiry into small business lending practices and there have been several parliamentary inquiries. As if this was not overkill, particularly for a government that once believed in the value of free enterprise and minimal regulation, there was an announcement in the budget of a banking executive accountability regime.

In what is an astounding interference in the legitimate operation of the boards of directors of the banks, this regime will hand power to APRA to licence bank executives (and remove those it doesn’t like), to tick off on remuneration arrangements and to insist that up to 60 per cent of executives’ variable remuneration is held back for a minimum of four years.

As the Treasurer said on budget night, “senior executives can be deregistered and disqualified from holding executive position and be stripped of their significant bonuses”. The Spanish Inquisition travels to 21st-century Australia, with fines of up to $200 million.

The fact some tin-pot parliamentary inquiry decided it was wrong that bank executives hadn’t been fired in the wake of several financial planning scandals persuaded Morrison to put the boot in. I just wonder how many public servants have been sacked over the years for unethical, commercially damaging or highly inappropriate actions.

The bottom line is this: banks are just boring financial intermediaries without which the economy could not function properly. They accept deposits, they raise finance and manage liquidity, they assess risk and they offer loans. They are involved in wealth management and superannuation.

They are more highly regulated than other companies in part because of the need to protect depositors and in part because of the overriding need to maintain financial stability. Australia was well-served by the regulatory arrange­ments in place when the global financial crisis hit. No bank was bailed out by the taxpayers and government funding guarantees were paid for the banks.

There is no doubt Labor’s interest in this area is largely motivated by its desire to force the banks out of wealth management and superannuation to fulfil a request made by the trade unions and industry super funds. Why the government hasn’t called this out is difficult to fathom. The alternative has been a government hellbent on imposing increasingly bizarre and costly regulations on one vital sector of the economy, singling out the big banks as part of the process. Ultimately, we all will lose out.

In the meantime, the government has lost its sense of purpose by trading in its commitment to smaller government, lower taxes and minimal regulation.