Business Daily Media

for all its worth, the banking royal commission could hurt a generation of battlers

for all its worth, the banking royal commission could hurt a generation of battlers

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is set to deliver its interim report no later than September 30.

There have already been plenty of consequences for industry participants from the proceedings thus far. But the ugly facts that have been uncovered obscure the larger, and in many ways more important, picture. What will be the inquiry’s long-term economic impact?

Any royal commission has two faces. In one way it’s like a coronial inquest; the facts of the case need to be established – perhaps in gruesome detail. In another way it’s an exercise in public catharsis, shedding light on hard truths so society can collectively move forward.

If ever there was a case study in how these two aspects can conflict, it’s this royal commission. At this point we can only speculate about the precise contents of the interim report. Based on what we’ve learned from the proceedings, however, it will cover charging fees to dead people, breaches of anti-money-laundering obligations, and the relentless pushing of unsuitable financial products on unsuspecting consumers.

Read more: There is nothing sacrosanct about corporate culture; we can and must regulate it[1]

Let’s be clear: that is all very bad, and there’s no excuse for it.

Furthermore, I’ve been consistently critical about less sensational but probably more damaging behaviours, such as imprudent lending practices. The massive amount of interest-only loans, which require borrowers to only repay the interest, risk detonating the Australian financial system the way sub-prime loans what’s this? did in the US a decade ago.

If all the royal commission achieved was to stop the financial services sector doing these unacceptable and unwise things, it would serve a useful purpose.

The danger of scaring bankers too straight

But it’s likely to do much more than that. It will causes bankers to pull back from public view like frightened turtles.

Why risk making a loan that could possibly go bad, even if on balance it’s a good idea for both borrower and lender? Why risk offering a financial product to someone who may not fully understand the implications? In short, why take much risk at all?

Now it may be that banks have taken too much risk in certain instances, but overall their job is to take risk. A bank that never makes a bad loan is not lending enough. The supply of credit in the economy depends on financial institutions being willing to balance the upsides and downsides of risk.

The royal commission has every chance of causing a big overreaction, with banks and other financial institutions being far too cautious in its wake.

The people who will lose from this excess caution are not the wealthy and financially sophisticated. They will still be prized customers - perhaps even more so. The people who will lose are the “marginal” borrowers - the young, the less affluent, the less educated, those with insecure employment, those newly arrived in Australia.

These folks face being functionally excluded from the modern economy for half a generation or more - pressed up against the glass, looking in on the benefits that accrue to those banks deem worthy credit risks in the post-commission environment.

Read more: What if we expected financial services to be more like health services?[2]

It’s also worth reflecting on what the commission might not do.

So far the boards and directors presiding over incentive schemes both facilitating and encouraging all kinds of bad, even illegal, behaviour have escaped relatively unscathed.

What about the regulators?

The royal commission is not set up to deal with such matters. The corporate and prudential regulators are. At least in principle. Yet the commission has barely touched on their failings.

This is the commission’s big omission. The Australian Securities and Investments Commission and the Australian Prudential Regulatory Authority have been, to put it politely, asleep at the switch. All this bad stuff happened on their watch. Worse still, it was entirely predictable. And one can only presume that neither side of politics took it seriously because neither, when in government, chose to put serious people in charge of these organisations, nor resource them properly.

The US Supreme Court justice Louis Brandies once famously observed that sunlight is the best disinfectant.

Quite so. But too much sunlight gives you skin cancer. The most enduring legacy of the banking royal commission might be the cancer of caution it will engender in the financial services industry.

Authors: Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

Read more http://theconversation.com/vital-signs-for-all-its-worth-the-banking-royal-commission-could-hurt-a-generation-of-battlers-103943

Business Daily Media Business Development

The Benefits of Renting an iPhone in 2022

The world of technology has come a very long way over recent years, and particularly when it comes to devices such as smartphones. Most people these days would be left feeling lost witho...

Business Daily Media - avatar Business Daily Media

why the maker of Marmite is feeling the squeeze

Different tastes.Shutterstock/abimagesAs a major manufacturer of well known cleaning products, it is perhaps fitting that events at Unilever have started to resemble something of a corporate...

John Colley, Professor of Practice, Associate Dean, Warwick Business School, University of Warwick - avatar John Colley, Professor of Practice, Associate Dean, Warwick Business School, University of Warwick

Drink problems at work got much worse during the pandemic – here's how employers can tackle them

The Downing Street “partygate” scandal has shown how alcohol use can be embedded in the everyday workplace. The internal investigation being led by senior civil servant Sue Gray ...

Ian Hamilton, Associate Professor of Addiction, University of York - avatar Ian Hamilton, Associate Professor of Addiction, University of York

what we know so far about the unfolding scandal

Conservative Treasury minister and Cabinet Office minister Lord Agnew has resigned from both of his posts with a scathing rebuke to his government colleagues over COVID business loan fraud. ...

John Tribe, Senior Lecturer in Law, University of Liverpool - avatar John Tribe, Senior Lecturer in Law, University of Liverpool

Three ways for Sony to avoid getting left behind by Microsoft

Everything to play for?Rokas TenysSony has had a rough few days. The Japanese tech giant has lost a whopping US$14 billion (£10 billion), or about 9% of its total value, since rival Mi...

Hamza Mudassir, Visiting Fellow in Strategy, Cambridge Judge Business School - avatar Hamza Mudassir, Visiting Fellow in Strategy, Cambridge Judge Business School

Mortgages Vs. Equity: Quick Guide To Understanding The Difference

Investing our money is a priority to generate a passive income. Also, avoiding the money not used starts losing its value. Investing in real estate has become one of the most popular met...

Ariana Mortenson - avatar Ariana Mortenson



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion