Australia’s big four lenders have been desperately fending off calls from the opposition Labor Party and the cross benches for a Royal Commission Inquiry into the big banks but the calls are growing louder.
Last week an alternative Private Members Bill was put to the Senate for a “Bank Royal Commission proxy” being a Parliamentary Commission of Inquiry.
CLSA’s Brian Johnson sees the proxy as a likely outcome although he is leaving room for Canberra to make a massive about turn as pressure mounts for a Royal Commission into banking.
“We don’t think you can rule out the Government reversing its anti-bank Royal Commission stance given the tidal wave shift towards the politics of populism and continuing transgressions by banks,” Johnson argued.
“This anti-bank populism is likely whipped up even more by the moves of the banks to increase mortgage rates, particularly owner-occupied rates, despite being uber-profitable.
“It's hard to conclude that the Australian banks’ previously unfettered pricing power is deteriorating ... or the earnings power of bank executives.”
The scary bit
In a client note, the analyst spelt out the difference between a Royal Commission and a Parliamentary Commission of Inquiry.
The former can only be initiated by the Government which instructs the Governor General to establish a formal inquiry, which can call witnesses and which members of the public can reach out to.
“That’s the scary bit as Royal Commissions tend to turn up issues which were not expected. The process is public and often leads to naming and shaming,” Johnson added.
On the other hand, the Parliamentary Commission of Inquiry is initiated by a Members Bill whereby Parliament establishes a similar external commission - which reports to Parliament as opposed to a Royal Commission reporting to the Governor General.
“It needs to pass both the Senate and House of Reps (which it likely would – with Coalition MP George Christensen likely to cross the floor). Once the Senate has voted it would then pass to the House of Representatives but it may not receive a high priority given it’s a Private Member’s bill.”
Scope and timing
Queensland MP Bob Katter and Christensen are currently working on a separate Private Member's bill in the House of Representatives also calling for a Commission of Enquiry.
“Thereafter it would be again debated and likely passed – we sense Christensen would not be the only back-bench MP to cross the floor with public sentiment shifting to support a Bank Royal Commission and the Liberal Coalition Government under pressure in the polls,” Johnson added.
The Government could then block the funding of such a Parliamentary Inquiry, the CLSA banking specialist went on to say, but it's hard to see any Government standing in the way of a bill that has passed both houses of Parliament, particularly given that the opening of the recent bank chief executive grilling in Canberra focused on the continuing breaches of the Australian Financial Services Licence conditions / product mis-selling by the Australian banks.
In terms of scope, the Explanatory Memorandum for the Private Member Bill states: “The Bill responds to episodes of misconduct that have been uncovered in the banking and financial services sector in recent years. The most conspicuous of these are instances of misconduct within the wealth management arms of vertically-integrated banks, particularly instances of retail customers having been given wrong and inappropriate financial advice, including being sold highly risky financial products."
"Allegations have also arisen regarding wrongfully and fraudulently denied insurance claims, and court action has been initiated regarding the manipulation of overnight interest rates and improper mortgage lending. These issues have arisen sporadically, usually as a result of the actions of whistle-blowers from within institutions or as a result of investigations by regulators," the memorandum continued.
The authors pointed out that parliamentary committees have not discovered the full extent of misconduct particularly given the limited time and resources available to committees of the parliament, and the inability to utilise expert legal cross-examination and forensic analysis.
“We sense the process of establishing either a Bank Commission of Inquiry or perhaps even a Bank Royal Commission could take months,” Johnson continued.