Another day, another piece of evidence that Joe Hockey is on the money with his call for a fundamental review of banking regulation.
As Glenn Dyer showed yesterday, it looks as though Australian banks will get a pass from the tough new capital and liquidity rules likely to be agreed by the G20 later this week for systemically-important banks. The reason? Their domestic focus and lack of exposure to overseas markets.
That’s the domestic focus and lack of overseas exposure the Big Four, led by Mike Smith at ANZ, are desperate to abandon in order to become, in the words of ANZ chairman John Morschel, “growth stocks” rather than “yield stocks”.
This comes less than a fortnight after the IMF — based on briefing by key Australian regulatory institutions — identified the same risk issue raised by Hockey as a particular post-GFC threat to Australian banking.
And yet still the criticism comes that this is “populist bank-bashing” or, better yet, “the populist war against the banks” as Chanticleer’s Tony Boyd wrote this morning.
Fancy that — the IMF, the RBA, APRA, the G20, all engaged in crass populism.
Yesterday Robert Gottliebsen warned of the danger that “in the end the politicians will want to satisfy the bank-bashing demands of the electorate” (a danger that, incidentally, the dearth of any serious action against the banks in recent political history appears to suggest is virtually nil).
The Australian Bankers’ Association went further on Tuesday, accusing Joe Hockey of “misleading statements” and “assertions that are without foundation”. In fact, it was the Bankers’ Association that was guilty of misleading, in claiming that taxpayer funds are not at risk under the current regulatory framework. ““Under the deposit guarantee, in the unlikely event that one of Australia’s heavily regulated, closely supervised banks, credit unions or building societies collapses, no depositor or taxpayer will be left out of pocket, because the rest of the industry will be levied to cover any shortfall,” said the ABA’s Stephen Munchenberg.
As Hockey pointed out on Lateline in response, this entirely misrepresents the nature of the guarantee, which ultimately is a government-backed guarantee, regardless of the mechanism by which it is funded.
And try telling the Americans, the Brits, the Europeans and the Irish that no taxpayer money is at risk when systemically-important banks hit the fence. An industry levy is useless when a too-big-to-fail bank goes under, and the cost to taxpayers ends up being colossal.
It’s precisely the taxpayer-backed nature of the phrase “too big to fail” that the banking cartel is now trading on in their quest to become “growth stocks”. The big Four now have the comfort of knowing that no matter what they do, the Australian Government will step in to pick up the pieces if things go badly wrong.
The Opposition isn’t above all criticism on this – Hockey’s demand that Wayne Swan and the bank executives front a town hall meeting in western Sydney is the sort of circus stunt that encourages those who want to delegitimise the entire debate by labelling it “populist”. And the Coalition has fallen back on arguing that things were so much better in financial regulation when it was in government. As Glenn Dyer noted in his call the other week for a comprehensive financial regulation inquiry, there are plenty of issues left hanging from the Howard era.
Do Hockey and Robb expect us to forget debacles like Westpoint, HIH, ASIC’s run of court failures or the banking cartel’s move to dominate the financial planning sector?
Above all, the Howard Government didn’t have the GFC to contend with, which has completely undermined the basic principles of our banking regulatory system. But what the Howard Government did do was establish the Wallis Inquiry, within weeks of coming to office. Fourteen years later, it’s time for this Government to establish a similar inquiry.