To fix bad bank behaviour, the banks must be deregulated. Royal commissions are pointless.


The Royal Commission inquiry into the banks and other financial institutions of Australia was described by the Prime Minister, as he announced his decision to instigate it, as “regrettable”. He said it had become “inevitable”. He also said that Government policy remained policy “until it is changed.” Only the Government can initiate a Royal Commission. So how was it inevitable? If it is regrettable, then why hold it?

The decision to hold the inquiry was a tawdry political one. The details of the politics behind this are not worth going into. It is enough to say that politicians of all colours are rarely exemplars of principle, ethics or even common sense. Nor do they care much about wasting taxpayers dollars.

There have been many examples of bad behaviour from the banks and their subsidiaries. Conduct has been, at times, unconscionable. The banking culture is notorious. We know this already. What is the point of having a royal commission take 1 year and then report the same material? What new examples of bad behaviour will add anything to the fundamental understanding we already have? This inquiry is pointless.

The inquiry will eventually make recommendations about regulating banker behaviour. I can tell you now: bad behaviour is not removed by Government regulation. The only way to remove bad behaviour is to enlist self-interest. The bankers must be made to know that their bad behaviour will have costs that are simply too high for them to risk incurring. That will only come from an environment in which bad behaviour has financial consequences for the bank itself. Only then, will the directors and chief executive officer institute effective internal systems. The way to achieve this is through deregulation, not increased regulation.

The banks operate under Government regulation framework that enforces an anti-competitive oligopoly. They are a protected species. Like a woodduck. There are no real financial consequences for a bank whose advisors  currently rip off their customers. The banks must be deregulated and their business exposed to competition and the threat of failure in the event that customers desert them. Until that happens, inquiries are pointless and wasteful.

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