Chalk-up another win for our too-big-to-fail banks

ScreenHunter_771 Jan. 13 14.25

By Leith van Onselen

The AFR’s Chris Joye is maintaining his rage over Treasurer Joe Hockey’s “Son of Wallis” Financial System Inquiry, which is increasingly looking like a lame duck.

Following Joye’s stellar effort over the weekend, arguing that no meaningful reform would take place as long as banking interests lead the inquiry, he has resoundingly condemned today’s inclusion of former Westpac CEO and specialist bank investor, David Morgan, in the Inquiry’s advisory panel. From the AFR:

Chalk up the mooted appointment of former Westpac CEO and specialist bank investor, David Morgan, to advise Joe Hockey’s financial inquiry as another win for the “too-big-to-fail” major banks that are meant to be the prime target of the review. The sector’s powerful lobby group, the Australian Bankers Association, will be happy that its ex-chairman will join the 39-year veteran and boss of CBA, David Murray, a decade-long director of Westpac, Carolyn Hewson, and the outgoing head of AMP and its banking subsidiary, Craig Dunn…

He [Morgan] currently serves on the boards of six different banks. JC Flowers has looked at investing in Australia before and has the capacity to do so in the future.

So Dr Morgan is another example of a current or former poacher being appointed a gamekeeper by Mr Hockey, who clearly has a case of the yips. In opposition Mr Hockey had no fear about taking on the big bank oligopoly. Today he is being unduly managed by it.

The absence of significant numbers of bank customers (aside from CSL’s Brian McNamee), and unconflicted individuals with deep policymaking and regulatory experience, suggests the entire exercise could be a waste of time…

Mr Murray, who is personally vetting all inquiry appointments, has lambasted the utterly appropriate deposit levy as an economy-wide tax, faulted widely supported IMF calls for the big four to hold more capital and reduce their leverage, and defended the majors high-teen returns on equity, which are the single clearest artefact of their too-big-to-fail status.

I couldn’t have said it better myself. This Inquiry is fast looking like a sham devised to maintain the status quo, including supporting the moral hazards and funding risks endemic across Australia’s too-big-to-fail banking system.

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Comments

  1. “…former poacher being appointed a gamekeeper…” One could say the same about the illustrious leader of ASIC ?! Perhaps there’s another name there for inclusion in The Inquiry….

  2. General Disarray

    This Inquiry is fast looking like a sham devised to maintain the status quo, including supporting the moral hazards and funding risks endemic across Australia’s too-big-to-fail banking system.

    I’m pretty sure that was predicted by a number of commenters here when Houses and Holes first mentioned David Murray was being considered for the position.

    • Another nail / jigsaw piece to ensure the ponzi continues with “other peoples money”, including those not yet born.

      At least reliability in the system is assured.

    • “In framing submissions, stakeholders are asked to consider the impact of changes to Australia’s financial system since the 1997 Wallis Report, identify factors most likely to influence the future development of the system, the principles which should underpin the system, and discuss options for responding to them.”

      IOW Frame submissions to reinforce the existing system status quo. Basically it is about how do we line up savers and taxpayers as a backstop enabling the extreme risk taking at national expense so that if something goews wrong it is NOT the bankers, i.e. Gail et al, who feel any pinch.

    • The objectives & terms of reference are of course suitably broad and nebulous, with the accordant catch-all qualifications of the terms to allow for hinderence of any changes likely to threaten the incumbents’ positions, and to ensure the status quo is effectively maintained.

      You can pretty much write your broad conclusions, and fill in the detail over the next year.

      – endorse the existing regulatory scheme as broadly sufficient, with some scope for loosening of the regulation of the largest banks while allowing for the increased regulation of the shadow banking sector.

      – endorsement of principles of scale and ‘just enough’ competition, allowing for continued growth of Big 4 relative to mutuals, and accommodation of banks taking over super funds.

      – accommodation of increased foreign equity stakes in our banks

      – affirmation of necessity for primacy of covered bond holders, securitisation, and appropriate taxation incentives

      – increased access to superannuation, and offering of financial products (e.g. home equity access) by super funds

      -acknowledge importance of an international regime, but entrench the domestic banks ability to spurn international regulators and set their own capital management paramaters based on our ‘special’ circumstances

      Yes, by all means – get your personal submissions in, everybody. Every opinion counts !

  3. This sham is a persistent problem with gvts who seek out experts who are conflicted by their years of experience within an industry.
    Telecoms is just as bad.

    If gvt doesn’t choose these experts the industry says the inquiry is being led by people who know little about their business on the fallacy that direct experience is required. Australia is relatively bad because it is small and the endemic behavior is to take care of one’s own.

    Will Murray really do a Tomlinson? No, of course he won’t.

    http://www.theaustralian.com.au/business/financial-services/latest-uk-bank-scandal-is-warning-to-murray-inquiry/story-fn91wd6x-1226770850021#

    • Are they conflicted or are they best positioned to make recommendations under section 4 of the terms of reference?

      ‘The Inquiry will recommend policy options that:

      promote a competitive and stable financial system that contributes to Australia’s productivity growth;

      promote the efficient allocation of capital and cost efficient access and services for users;

      meet the needs of users with appropriate financial products and services;

      create an environment conducive to dynamic and innovative financial service providers; and

      relate to other matters that fall within this terms of reference.’

      Reading the terms of reference it is clear that revolutionary change is neither intended nor desired. However that does not eliminate the possibility of the occasional modest change.

      • 3d1k Read that again. Is there anywhere in it that the national interest might get a guernsey? Is there anywhere that the Banks role in the economy gets a guernsey? (Other than Bank profits=healthy economy) Is there anywhere that promotes the idea that those making the decisions, if they fail, should be the ones who pay?
        To quote Kunstler…It’s “cockamamie bullshit”

      • Flawse, that kinda is my point! Expectations for major change are unrealistic. You could even interpret the terms of reference as being designed to potentially enhance conditions for the banks.

      • Au contraire! Revolutionary change is exactly what the terms of reference is calling for, albeit it’s unlikely that this is what is intended. For example:
        – promote a competitive and stable financial system that contributes to Australia’s productivity growth;
        WE DO NOT CURRENTLY HAVE A STABLE FINANCIAL SYSTEM. WE ARE SADDLED WITH 4 TBTF TROLLS THAT ARE MANIFESTLY BADLY MANAGED. (YOU ONLY HAVE TO LOOK AT HOW THEY INVARIABLY GET DUSTED WHEN THEY TRY THEIR LUCK OUTSIDE THE SHELTERED WORKSHOP TO HAVE THIS OBVIOUS FACT CONFIRMED. WILL ANZ’S ASIA PUSH BE THE EXCEPTION? LET’S SEE.) THERE IS NO REDUNDANCY THERE. IF ONE OF THE FOUR FAILS WE’RE ALL SCREWED.
        – promote the efficient allocation of capital and cost efficient access and services for users;
        66% OF THE BIG 4’S BOOK IS IN MORTGAGES. BUSINESS CAN GO WHISTLE. HOW IS THAT EFFICIENT ALLOCATION OF CAPITAL? GIVEN THE PROFIT LEVELS OF THE BIG 4, DO YOU BELIEVE THEIR PRICES ARE ACTUALLY COMPETITIVE?
        – meet the needs of users with appropriate financial products and services;
        ONLY IF THAT MEANS MORTGAGES ON RESIDENTIAL RE COULD THIS REPRESENT THE STATUS QUO.
        – create an environment conducive to dynamic and innovative financial service providers; and
        THANKS FOR THE LAUGH.

      • No comment on Hockey’s backflip since being elected 3d1k?

        http://www.afr.com/f/free/blogs/christopher_joye/why_the_big_banks_will_still_rule_bpwYW1Pm1pT4lHJafApbDL

        “Hockey was once sympathetic to this view. He noted: “There appears . . . to be a growing conflict between the high-growth aspirations of bank management teams . . . who are focused on maximising shareholder returns, and the longer-term interests of taxpayers and regulators, who are much more eager to ensure that this return maximisation does not come with higher ‘non-core’ risks that trigger bank failures and financial system instability.”

        He added: “With massive taxpayer risk in play we as policymakers need to decide if we want the major banks to be unrestrained growth stocks, like resources or technology companies. Or do we want the industry to be more akin to bullet-proof utilities that are focused on delivering stable returns to shareholders?””

      • Ah thanks 3d1k. I missed your point perhaps. The problem is if we don’t get change then it all keeps getting worse.
        The answers lie back in time.

  4. Lets be honest would we really want to kill one of the few private growth industries in Australia s post mining boom. Royal commissions have a purpose which has never been about discovery of the facts, or punishment of the obviously guilty, if anything they are the process by which the unconscionable becomes the status-quo.

    My favorite Royal commission quote is:

    “I’ve been around long enough to know that the prime function of politics is to win elections, and the function of commissions of inquiry is to throw enough dust to cover the facts…”

    • “Lets be honest would we really want to kill one of the few private growth industries in Australia s post mining boom”.

      Australia’s financial system has grown well beyond being an enabler for the broader economy to being a parasite. It’s excessive growth chokes-off resources from other sectors.

      • Hmmm
        Seems to me, that in a natural jungle, parasites are usually killed indirectly as a result of the inefficiency they create within their hosts, I’m not convinced that the financial jungle is any different. So as far as I can tell the Australian financial system is proceeding in exactly the right direction to ultimately destroy itself, sure it’ll take another 20 years to die but die it will.

        As for Commissions of inquiry, Frankly they’d be the very last spot in the entire world that I’d look for efficiency. If financial efficiency results from this charade, it’ll be the first time in the history of inquiries (humanity) that any industry discovered efficiency as a result of an inquiry.

    • Either that or it kills the rest of the economy and then implodes anyway because the is nothing left for it to intermediate.

    • interested partyMEMBER

      China-Bob,

      on the parasitic behaviour of the banks, we as a species have done the same bloody thing to the planet.
      I may sound green there…….sorry, not my cup of tea……..but the truth is the truth.

  5. I couldn’t have said it better myself. This Inquiry is fast looking like a sham devised to maintain the status quo, including supporting the moral hazards and funding risks endemic across Australia’s too-big-to-fail banking system.

    I know that we’re meant to pretend to be surprised but did anyone truly expect anything better from Hockey?

    Seriously?

    He’s almost enough of an idiot to make Swan look good.