Labor to take stand on banks as RBA corrupts Frydenberg

The AFR is reporting as much:

Banks will be forced to pay financial compensation and remediation to every bank customer who has been wronged, as the Labor Party signalled a tough response to the Hayne royal commission if it wins power.

The ALP has also signalled it is likely to pursue comprehensive consumer law reform and will be laying out some “clear markers” to ensure the banking industry improves its standing and weans itself off the remuneration incentives which led to many of the excesses put under the spotlight by the royal commission.

As they should. Giving the banks some big, dumb rules is also a much better approach than all of this waffle about “culture”.

The Labor rhetoric stands in stark contrast to the corrupt RBA which has been behaving appallingly in advance of the Hayne RC recommendations. First it was revealed to be working behind the scenes to be working against meaningful reform:

The Reserve Bank of Australia and Treasury have privately cautioned the Morrison government that any regulatory response to the financial services Royal Commission must be careful to avoid putting the brakes on lending to home buyers and business.

Then, last week, it’s ribald corruption broke into the open:

The RBA’s fingerprints are all over the CFR statement, which says “an overly cautious approach by some lenders to incorporating relevant laws and standards into loan approval processes may be affecting lending decisions”.

Bowen should be aware that there is a corrupt coterie in senior levels of the RBA and Treasury that will undermine every attempt to bring justice and new behaviour to banks to prevent themselves being blamed for any housing bust fallout. Bowen is planning to set up a Treasury task force but he should either do it separately or hand-pick the staff. They cannot be trusted to give national interest advice.

The RBA and Treasury are not on your side, Mr Bowen. They are captured by the banks. And they have, in turn, captured the Treasurer, from The Australian today:

“Josh Frydenberg declared he would do nothing to restrict the “free flow of credit”

“I’m going to be very conscious when working on the government response to the royal commission to ensure there is a free flow of ­credit in the economy and we don’t see a tightening there ­unnecessarily.”

Mr Frydenberg has already urged lenders to keep their books open as borrowers face more stringent loan applications resulting in smaller loans, longer processing times and less creditworthy borrowers being turned down.

Thankfully Frydenliar won’t be there to legislate a damp squib. Labor’s tougher stand reaffirms the outlook for interest rate cuts.

Comments

  1. pursue comprehensive consumer law reform

    yay, we can have more laws that don’t get enforced, like the foreign ownership of property, and the existing banking laws by all accounts so far from the RC. Clearly writing new laws that don’t get enforced will be talking a strong stand. How about instead they enforce the existing laws. Oh, that’s right, they are just signalling for the appearance of doing something while continuing business as usual.

  2. Is it because they are captured or are they just acting in preserving self-interest? I’m not sure. Very few regulators will want a debt deflation style credit crash in Australia because they will be blamed for it which is obvious. They will be thinking as long as any loans written are serviceable and people know full well what they are getting into what’s the problem? Why cause a crash unnecessarily? There’s enough anecdotal evidence that the banks are scared to lend anything (credit crunch) even to people who could service the loan (e.g. refinance rejections where there isn’t a missed payment). After all arrears rates were low for quite some time at most Australian banks which doesn’t quite coincide with the whole narrative of “giving loans en masse to people who can’t afford them”. The regulators will be seeing a lot of what they would consider “self-harm” to the economy at this point and yes it could make their job a lot harder so I’m not surprised by this behavior. A rational self-interested economic bureaucrat will choose “high debt but serviceable via the economy” vs “low debt but there’s panic, pain and people will lose their livelihoods” every time.

    • “Very few regulators will want a debt deflation style credit crash” Yes, but it’s because that road has been taken time and time again over the last few decades ( since 1990?) that very necessary, real reform has not been enacted. It’s almost inevitable that at some stage debt-deflation is unavoidable. Yes, ‘they’ will try the same trick again, but on one terrible occasion – probably this one- it’s going to fail, and fail so badly that “pain and people will lose their livelihoods” will be a good result – social violence being the alternative.

      • Maybe you should pay AK with a free subscription, since he added as much original content as is contained in the original article.
        Given the sudden spray of subscribe comments I take it MB has taken a downwards turn financially since the great cleansing of the commentariat.

    • they could successfully deflect blame by jailing fire sector rrrsoles amid much fingerpointing at said rrrsoles.
      any newby regulator must be considering jailtime for credibility’s sake.

  3. As they should. Giving the banks some big, dumb rules is also a much better approach than all of this waffle about “culture”.

    Yes yes, big dumb rules. I have agitated for this approach for years.

    The classical Peachy solutions tend to revolve around “big dumb rules” or “big flaming inferno”

    • ‘big flaming inferno’ would be a good user name, if we ever figure out how to change them

      • Nonono. Not big nor dumb enough.

        a REAL big dumb rule is “if the LTI is more than 4 AT origination the loan and security is unenforceable”.

        See, this sort of rule takes care of itself – don’t need no stinking APRA or ASIC or Banking Code to verify. You can be sure that there will be 0 loans written with LTI >4, and income will be scrutinised by banks right up the wazoo.

      • You really don’t know how to play the game peachy. How is income determined? It will be by documentation provided to the bank, as how else can it be so? If you lie on the application that isn’t the banks fault. This is how they are operating now. The only way this big dumb rule actually works is if a central body determines how much can be lent to any given person.

      • I think you’ve missed his point.

        If the loan and security are unenforceable, it means the bank has no grounds on which to demand payment or evict the mortgagee.

        Ie: if someone managed to get a mortgage issued with a LTI >=4, they’ve just scored a (nearly) free house.

        Presumably income would be determined by the ATO (side benefit: might cut down cashies).

      • Smithy,
        this is how the legal proceedings would go.
        applicant applies to court to have mortgage and loan dismissed.
        Bank attends court with documentation claiming sufficient income,
        Applicant has 2 options at this point, either accept they had income required or admit that loan application was fraudulent and have loan and mortgage declared invalid.
        If they do this bank then launches legal action for damages due to fraud which is an unlosable case at this point given the evidence presented in court.
        Bank is awarded all they would have been owed for the loan as damages anyway, and the applicant can also end up in prison if convicted of criminal fraud as well as civil damages.
        Not sure how this actually discourages anything.

        edit:
        Of course if a central authority determines amount that can be lent then the rule is a moot point anyway as the banks will lend whatever the central authority says, and then the honesty of the central authority rather than the banks is the determining factor.

      • Bank attends court with documentation claiming sufficient income,

        “Claiming” isn’t good enough. The bank would have to demonstrate the applicant actually had sufficient income. Ie: demonstrate they have done the due diligence that the applicant’s stated income was both a) accurate and b) sufficient. If the applicant’s reported income was wrong – either deliberately or accidentally – and the bank did not discover that, that is their problem.

        Not sure how this actually discourages anything.
        The point is to put the onus (back) onto the bank to lend responsibly. If the bank doesn’t lend responsibly, it loses.

        There is no need for a “central lending authority”. There would be a need for a central income verification authority – but we already have one of those, the ATO.

      • this makes the ato a defacto lending authority. all banks will simply lend 4x what the ATO reports and income will then start to be gamed by both the populace at large, and vested interests trying to increase lending. Expect the definition of income to become very elastic if this is actually implemented.
        Also, what if 2 separate banks both lend at 4X income, what is the result then? The second bank nullifies the first or the second just misses out? what about personal/car loans, HECS debt, credit cards and a multitude of other things?
        The reality is you don’t need to change the rules as banks are currently required to lend responsibly. What is lacking is the actual enforcement of these standards, and new rules won;t actually change that.

      • all banks will simply lend 4x what the ATO reports and income will then start to be gamed by both the populace at large, and vested interests trying to increase lending.

        Uh huh. So people are going to start overstating their income to the ATO and pay more tax, you reckon ?

        Also, what if 2 separate banks both lend at 4X income, what is the result then? The second bank nullifies the first or the second just misses out?

        Second bank hasn’t done due diligence. Issued a mortgage the mortgagee can’t afford. Mortgage and security unenforceable.

        Which part of “pushing the onus for responsible lending back to the banks” are you struggling with ?

        The reality is you don’t need to change the rules as banks are currently required to lend responsibly.

        Now you’re moving the goalposts. The point of this whole thread was some “big dumb rules” that could be used to put some skin in the game from the banks.

      • “start overstating their income to the ATO and pay more tax, you reckon ?”
        People currently buy loss making investments and claim some of the losses as a tax deduction to currently game the income system so yes I do think that. Or will game the system in other ways to improve the income figure that is provided by the ato.
        The first hurdle is what is income? do capital gains count? share dividends? private company profits? and income for how long? 52 X last weeks income? 4X last years taxable income? 4x the average of the last 10 years income?
        Given the last years taxable income seems the most likely, what I see happening is people will be forced to work a second job for a year to bump up their taxable income to allow a bigger loan to be obtained and can then stop again. Still not sure how this actually forces the banks to be responsible, if anything it makes them less responsible, you cross the big dumb threshold and you’re golden.

      • The first hurdle is what is income?

        What the ATO is taxing you on would seem the obvious answer.

        You are playing silly, pointless, god-of-the-gaps games. All of these things are implementation and semantic details that don’t really impact the core principle.

        Still not sure how this actually forces the banks to be responsible, if anything it makes them less responsible, you cross the big dumb threshold and you’re golden.

        Because if the bank gets it wrong and knowingly or ignorantly gives you a loan you can’t repay, they lose. As opposed to now, when the bank gets it wrong and gives you a loan you can’t repay, they win.

      • The semantics and the details are all that matter. It’s wonderful having a grand vision of this wonderful system. Guess what, our current systems requires responsible lending. Hows that working out?
        If it is income you are taxed on, capital gains count, so if i sell assets suddenly my borrowing capacity doubles or triples?

        “Because if the bank gets it wrong and knowingly or ignorantly gives you a loan you can’t repay, they lose.”
        Yet under this system the sole determinant of can repay is a number provided by the ATO. how does this make the banks responsible? It may reduce total money lent, but it makes the banks less responsible. Got the number from the ato, then the loan is all good.
        You can’t have a big dumb rule and then apply a hundred caveats. That is the system we have now.

      • Yet under this system the sole determinant of can repay is a number provided by the ATO.

        I don’t think anyone suggested it should be the SOLE determinant. Big dumb rules are baselines from which practical details are built.

        Got the number from the ato, then the loan is all good.

        No.

  4. it’s just campaign gibberish – Labor will do nothing to banks once they get into power

    it was under labor that Department of Finance was renamed into Department of Finance and Deregulation

    I guess they wanted to emphasize that are in love with banking industry more than Liberals who are in bed with mining

  5. I don’t trust Bowen. To me this guy is a symbol of everything wrong with Labor. This was the guy who opened up residential housing to foreign buyers in 09.

    I want to hear Labor commit to another 3 years of royal commission. The only way to keep bankster scum honest is to keep them under investigation.

  6. I’m not sure anything will change. I’m yet to receive a reply from the BRC. The RBA will always argue monetary stability as they collect their loot.

  7. TailorTrashMEMBER

    Labor looks a shoo in ……..and they can engage in some boom crash opera ….but will they ?……lord knows Straya needs to be tipped on its arse
    …….Shorten while lacking colour seems to have done a good job of holding them together while making a fist of some policy ………he might surprise when he gets the big job if he holds his nerve and tunes in to feelings of the electorate …….boom crash opera would be good …….with more discipline than Whitlam the last labor maestro
    who did that .

  8. Jumping jack flash

    Go easy on him. Bloke just knows which way is up.

    How long before they stop pretending the economy is anything but a big ball of debt taken on by rube workers who think they “have to do it” and then throw it all up the pyramid to the individuals who hold all the essential assets, or to the corporations who control all the essential resources and their top tier employees who steal all the wages generated from them.

    Restricting the flow of debt in such an “economy” would be nothing short of disastrous.
    I mean, if there was no debt to spend, how would the rich and powerful obtain more of other people’s debt to get more rich and powerful?

    Yep, disastrous.

  9. “There is no change of government, there is only the Treasury” – Harold Wilson, British PM 1964 to 1970 and 1974 to 1976