Scott Morrison hauls in big bank chairs for governance talks
The Australian 12:00am February 11, 2017
Richard Gluyas
Scott Morrison is dialling up the pressure on the nation’s trouble-prone banking industry, hauling in each of the major-bank chairs for meetings to stress the importance of making good on the industry’s promise to overhaul its governance and culture.
The one-on-one meetings — with Commonwealth Bank’s Catherine Livingstone, Westpac’s Lindsay Maxsted, ANZ Bank’s David Gonski and NAB’s Ken Henry — have been taking place since the Treasurer’s return from Britain late last month.
They signal a determination by the Turnbull government to double down on the banks after making it clear they must now defend themselves if further cases of serious misconduct emerge, particularly if they are more recent and not so-called “legacy” issues.
“Malcolm Turnbull has been saying it and so has Scott Morrison: ‘Lift your game or live with the consequences’,” a senior banker told The Weekend Australian.
The consequences, according to a Canberra insider, range from even tighter vigilance of the country’s most heavily scrutinised industry to a backflip on the government’s previous opposition to a royal commission.
“The banks would be foolish to think that a royal commission is not possible (under a Coalition government),” the insider said.
“Certainly if there’s a change in government to Labor there will be a royal commission.”
Mr Morrison’s summons to the major-bank chairs reflects the overriding responsibility of boards for governance and culture.
The chief executives have had an extra layer of accountability since August last year.
When the industry held back some of the Reserve Bank’s 25-basis-point cut in the cash rate that month, the Prime Minister announced that the banks would appear at least annually before the House of Representatives economics committee to explain their pricing decisions, among other things. Mr Turnbull’s move was partly aimed at diffusing Labor’s call for a royal commission.
A second round of hearings in Canberra is scheduled for early next month after an inaugural appearance by the chief executives in October.
NAB boss Andrew Thorburn will face the David Coleman-chaired committee on March 3, with CBA’s Ian Narev and ANZ’s Shayne Elliott following up on March 7 and Westpac’s Brian Hartzer appearing on March 8.
The Weekend Australian has also learned that the Australian Bankers’ Association is a late addition to the agenda and will appear after Westpac on March 8.
A source said the committee would probe some bank-specific issues since the October hearings, such as the $15 million in fines paid by ANZ and Macquarie Bank for attempting to act as a cartel over setting the benchmark rate for the Malaysian ringgit.
Another feature, which explains the ABA’s appearance, will be follow-up inquiries related to industry matters discussed in the October hearings, as well as key recommendations in Kate Carnell’s inquiry into small business loans and the interim report from a review led by Ian Ramsay of the financial system’s external dispute resolution (EDR) framework.
Some committee members want a commitment from the industry of fast action on Carnell’s third recommendation — a red light to stop banks acting on non-monetary defaults in relation to small business loans worth less than $5m. A one-stop-shop EDR scheme to provide speedy, low-cost redress for small business and retail consumers of financial products, supported by Ms Carnell and Mr Ramsay in his interim report, is also a priority.
The ABA, for its part, has been working on a six-point package of reforms since April last year. It includes independent industry reviews of the Code of Banking Practice by Cameron Ralph managing director Phil Khoury, as well as ex-Australian Public Service commissioner Stephen Sedgwick’s examination of product sales commissions and payments.
The Carnell report included a stinging rebuke of the industry for its poor record of implementing previous commitments to reform, noting 40 recommendations relating to small business and banking practices had been made in 17 inquiries since the financial crisis.
“Issues have been repeatedly raised and recommendations recycled from one inquiry into the next, with the banking industry taking little action,” the report says.
Examples included the power imbalance between banks and small-business customers, one-sided contractual relationships, unilateral changes to contracts, poor communication, lack of transparency, inadequate timeframes and significant gaps in access to justice.
The report quoted the evidence of CBA chief financial officer David Craig, who told the inquiry he understood the “concern around inaction over a period of time”.
He said: “The fact of the matter is that banks continue to appear before inquiries where recommendations are made and things don’t happen. It’s not a satisfactory process.”
The first recommendation in the Carnell report is to strengthen the ABA’s six-point manifesto by publishing implementation plans for each bank, including key milestones and outcomes.