Sacking bankers no substitute for long-term reforms

The resignations of the chairman and chief executive of NAB this week produced a welcome sense of catharsis after the pain of the banking royal commission. But that emotional release is, in many ways, a distraction.

While their resignations were probably inevitable, the public interest in the fate of these rather obscure executives suggests something more is at play.

Outgoing NAB chairman Ken Henry.Credit:Dominic Lorrimer

To be sure, the royal commission has exposed significant examples of negligence and even fraud in the banking industry but Kenneth Hayne's inquiry has become much more than an investigation of certain shoddy financial practices. It has been used as a political proxy for much wider discontents in Australian society.

In one sense, it is hard to understand why bankers are so on the nose in Australia, because it is one of the few countries where they largely avoided the excesses that caused the global financial crisis.

Yet it is clear that banks, rather then power companies or health insurers or property developers, have become a symbol for the perceived evils of capitalism at a time when real incomes are going nowhere and the goal of owning a house seems ever more remote for many young people. These problems are not uniquely the fault of the banks but, for many average people, bankers have come to play the role of 'haves' in a society where they see themselves as 'have nots'.

The inquiry promised retribution for this unjust world but many were disappointed when Mr Hayne handed down his final report.

Unlike the reports of other royal commissions, such as the one into trade unions, he failed to name names of individuals who should be held responsible and sent to jail.

Mr Hayne had to be vague partly because in giant bureaucracies such as the banks it can be hard to work out who has responsibility.  One crucial but under-appreciated recommendation he made was designed to correct this problem. He called for a dramatic strengthening and expansion to other financial services of the Banking Executive Accountability Regime so that one executive is clearly legally responsible for each financial product. The Herald agrees.

Given the lack of a hit list, the belated resignations of NAB chairman Ken Henry and chief executive Andrew Thorburn, the only two bankers Mr Hayne singled out for individual criticism, will give many a sense of closure.

Yet the two executives were, in one sense, just collateral damage. Mr Hayne did not blame them directly, or otherwise, for the big NAB scam exposed by the inquiry in which the bank deducted $100 million of fees from clients to whom it provided no services.

Instead, the two executives were faulted for their lack of contrition after the fact at the inquiry's public hearings last year. Mr Hayne said NAB did not appear "willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly".

While Mr Hayne was right that the two bankers were unduly defensive and obstructive and the former Canberra mandarin Dr Henry, in particular, spoke in intellectual circumlocutions straight out of Yes Minister, this was more presentation than substance.  Dr Henry now says that he really was sorry but just failed to show it.

Executives from ANZ and CBA, who arguably had as much to be embarrassed about, adopted a more emollient public relations strategy of abject apology at the hearings and were not ticked off. It remains to be seen how sincere they were.

This is not to downplay the importance of punishing individuals which can serve as a lesson to all bankers about taking the law seriously. But the focus should be on long-term reform rather than on psychodrama.

Here there is still no sense of closure or catharsis and there is a lot of work to do.

As with any crime, the threat of punishment only matters if people think they risk being caught. Yet royal commissions come once in a generation.

Bankers and bank shareholders will quickly forget the lesson unless corporate regulators are given the power, the cash and the people they need to take a much more aggressive approach day in and day out.

The debate must shift to ensuring that regulators, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, have these resources and then to strengthening consumer protection laws in line with Mr Hayne's recommendations.

Both the Labor and Liberal parties have promised to do so but the devil will be in the details. Worryingly, the legislation will not be debated seriously before the next election. That will leave ample time for the lobbyists for the financial services industry to regroup. Bank bosses will come and go. The real fight to protect consumers has just begun.

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