The problem with this bank inquiry
The bank conduct inquiry was conducted by the wrong people and doesn't address the core problems of conflicted interests and massively unjustified bank profits, Bernard Hickey argues.
Older readers may remember a television ad from the 1970s and 1980s for a type of non-alcoholic whiskey only marketed in Australia and New Zealand. Claytons, the punchline went, was "the drink you have when you're not having a drink." It is now part of the Australasian lexicon for something you have when you're not really having it.
The review into bank conduct presented yesterday by the Financial Markets Authority and the Reserve Bank of New Zealand was a good-looking inquiry that appeared to be tough on the banks and present deadlines for fixing behaviour. But it is a Clayton's inquiry. The inquiry you're having when you're not really having an inquiry.
This time it is the Australians who are having the real thing. The Hayne Royal Commission into Misconduct in the Banking Superannuation and Financial Services has swept a hard broom into the darkest corners of Australia's banks and insurers and dug out the nastiest examples of egregrious conduct for all to see and criticise.
Names have been named. Executives and directors have been sacked. Reputations have been damaged. It has transfixed the nation and the industry. No one is in any doubt that the Hayne Royal Commission is getting to the bottom of the problem. The taste may be bitter and sharp for the industry, but it will leave a warmer and more confident feeling for customers when it is finished.
The New Zealand version delivered yesterday appeared on the surface to call out bad behaviour and make tough calls to improve behaviour or face tougher legislation. FMA CEO Rob Everett and RBNZ Governor wagged their fingers at the banks and suggested they be given powers to regulate their behaviour.
But they didn't name names. There were no fines.
But it was clear when reading between the lines that names could have been named and plenty of bad conduct was there.
"Our review identified more than 50 remediation activities that were in progress or recently completed," they wrote, pointing out 431,000 customers had been 'impacted' to the tune of $23.9 million.
That means banks over-charged customers by that much.
The tone of the report made clear why the FMA and the Reserve Bank were the wrong people to do it. Their core task is to protect public confidence in the financial system. Naming names and undermining confidence in one of the too-big-to-fail banks would have meant the regulators were actually breaking the law.
"These (remediation) issues, while occurring across most banks, appear to have a relatively low average financial impact per customer. This could change as banks continue to work through the assessment and remediation of issues," it wrote.
"We also identified a small number of issues related to poor conduct of bank staff rather than systems or processes. While fewer customers were affected by these issues, the financial impacts to customers and the banks are potentially larger. Based on the information disclosed by banks, these instances of poor conduct were not widespread."
That's alright then.
But still no identification of who they were and what has happened.
The Reserve Bank has a history of not identifying wrongdoers and its performance on CDL Insurance showed how it favoured broad financial stability over customer and shareholder interests. It did not disclose the problems it knew about until forced to.
A Royal Commission would have been much more effective in winning the confidence of the public that nothing was being covered up, including the profitability of the banks.
Our banks are among the most profitable in the world, as this Moody's chart below shows. They produce more than $1000 profit per New Zealander per year, and with relatively little volatility.
In many ways, this is the bigger issue. It is not illegal, but it does cost all New Zealanders. The banks should be among the first industries subject to a market study by the Commerce Commission, straight after the petrol stations and supermarkets.
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