A lack of competition is at the heart of the failings that have undermined Australia’s banking sector.
However, the same lack of competition is central to the durability of the country’s banking system which stood Australia’s economy in good stead during and after the GFC.
This is the analysis put forward by Griffith Business School researcher, Dr Katherine Hunt, who has urged against the establishment of a Royal Commission into bank scandals and misconduct in the financial services sector.
A three-day parliamentary inquiry into the banking industry started on Tuesday, prompting new debate around the need for a Royal Commission.
“It’s a system that’s faulty in many ways but it’s also a very strong system compared to many other countries and I don’t see how a Royal Commission will help other than bringing to light more of what we already know,” Dr Hunt said.
A Royal Commission can refer information about suspected or alleged crimes to relevant law enforcement authorities or share relevant information with other ongoing inquiries. It has the power to summon witnesses to appear before it and require them to answer questions under oath or affirmation, and produce documents or other material pieces of evidence.
Value of Royal Commission into banking sector is not obvious
Dr Hunt, an expert in financial planning, microfinance and professionalism in financial services, argues a Royal Commission would not reveal any new information about the sector’s problems that is not already known to the government.
“I don’t see the value in a Royal Commission in this situation,” Dr Hunt said. “If there was a specific issue in the banking sector that the government wanted to investigate or deal with, they would just use ASIC which has all the powers required.
“Is it naïve or stupid – one or the other – to imagine we don’t have all the information already? We already know enough to act. The question is whether the political backbone to take decisive action exists, and a Royal Commission is not going to answer that question.”
Dr Hunt believes a greater numbers of banks in the US and UK, for example, inhibits the influence and control of banks.
“They can’t control the regulations that govern them because there are so many of them competing with each other. They have to be all on their toes.
“Relative to the rest of the world, we have a problem with very low competition between our 4.5 banks. The other side of that coin is that because there are only four big banks our system is really strong.”
A culture of scandal and misconduct has been linked to the financial services sector, with the banks’ failure to pass on full value of recent RBA official interest rate cuts the latest source of customer anger.