Josh Frydenberg turns ASIC into paper tiger

As we know, the Hayne Banking Royal Commission’s first recommendation was to maintain responsible lending laws:

Hayne royal commission recommendation 1

Source: Hayne Banking Royal Commission Final Report.

The Hayne Royal Commission came to this recommendation after observing multiple cases of predatory lending over its 12 month deliberation.

Despite this recommendation, Treasurer Josh Frydenberg is currently seeking to abolish responsible lending laws following pressure from the banking industry, who claim such rules are a handbrake on credit. Never mind that new mortgage commitments are running at record high levels, which completely debunks their claim.

Bizarrely, RBA Governor Phil Lowe also tacitly supported the abolition of responsible lending rules, last year telling the Standing Committee on Economics that Australian mortgage restrictions had become too strict and were constraining the economy:

“The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad, because the bank didn’t understand the customer; if it had done proper due diligence—this is the mindset of some—the bank would never have made the loan. So some of the banks have had this mindset, ‘Well, we can’t make loans that go bad'”.

The RBA and Treasury also directly thwarted ASIC’s “wagyu and shiraz” responsible lending case against Westpac:

The Australian Securities and Investments Commission has decided not to appeal to the High Court its case against Westpac for alleged responsible lending failures, after the heads of the Reserve Bank of Australia and Treasury both privately warned it would exacerbate economic uncertainty caused by COVID-19…

Nor were Australia’s financial regulators, ASIC and APRA, consulted on the decision to axe responsible lending rules:

Commissioners from ASIC and APRA were questioned about the scrapping of responsible lending laws before a parliamentary committee last week, where they revealed they were given little-to-no notice and were not asked for their views on the decision…

“I’m the commissioner with responsibility for credit,” [ASIC’s Sean Hughes said], “and I was first advised when I read the Treasurer’s media statement through the media on the morning of 25 September.”

Thus, Josh Frydenberg has worked hand-in-glove with the banking industry, the RBA and Treasury to undermine Australia’s financial regulators by scrapping responsible lending rules.

Now Frydenberg is looking to neuter ASIC altogether, appointing former banking lawyer Joseph Longo as chairman of ASIC and directing him to support the economic recovery from the pandemic rather than enforcing financial system conduct:

…the “wagyu and shiraz” responsible lending case against Westpac… became a particular point of friction between Frydenberg and [former ASIC chairman James] Shipton, along with perceived instances where he believed the regulator was standing in the way of Treasury’s attempts to drive the economic recovery out of the COVID-19 recession…

Frydenberg made it clear the direction of ASIC would be changing dramatically from the tougher stance foisted on it by the Hayne royal commission just three short years ago.

A new government statement of expectations will “make clear the government expects ASIC to support Australia’s economic recovery from the COVID-19 pandemic”.

So basically, the Morrison Government wants to turn ASIC into a paper tiger regulator. Pumping as much cheap credit to sub-prime borrowers as possible is now the government’s priority and ASIC must turn a blind eye. Responsible lending be damned!

Kenneth Hayne must be watching on in disgust. What was the point of conducting the banking royal commission when its number one recommendation (among others) is being directly contravened by the government?

Unconventional Economist
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Comments

  1. Goldstandard1MEMBER

    Well the Gov never wanted the royal commision EVER. They did it kicking and screaming and now they’ve ignored the findings. No rocket science here. Who’s telling them they have to do anything? Australia seems to want higher property prices and that comes from more credit. Simple.

    Unfortunately it now is in a situation where it crashes, not falls more calmly.

    • happy valleyMEMBER

      Yep, laying of hands, happy clappy ScoMo (ask not what the gubmint can do for you, but what you do for the community) appparently voted 26 times against holding the RC which obviously would reveal, and did reveal, massive dirt, albeit it was hindered, from the start, by its short term and therefore, only scratched the surface.

  2. Or, in today’s AFR speak, “Frydenberg cleans out ASIC” to make it “more business-friendly”. Yeah, I know we shouldn’t buy The Evil One, but I am practised at Laying Hands On it.

  3. SoMPLSBoyMEMBER

    Responsible?
    Strayan banks?
    Now that’s a good one!
    ASIC going ‘easy’ is same as the Mafia ‘owning the District Attorneys office completely.
    They are money launderers without equal and also need to pay back an additional $3.6bil ( on top of $1.7 bil paid already) for financial planning fees for no service. ( They told Josh how it would eventuate; he didn’t dare ask a thing)

    Their ‘reach’ and ‘power’ are enormous and they will further their own interests ( and global shareholders) and if Straya gets destroyed, so be it.
    Just look around- $1.0mil ‘median’ house prices and colossal associated debt to ‘play’ suggests there is no road back from total destruction and when it occurs (some day) guess who will be there to finance the rebuild?

    And, average Jack & Jill celebrate and toast what has occurred.

  4. Does Mr Longo get $118k to sort out his personal tax affairs and a Cartier watch to go with the appointment, or am I confusing my outrage again? It’s hard to keep up.

  5. Ronin8317MEMBER

    The “responsible lending law” exists to protect the Australia government rather than the borrower. It was put in place to prevent ‘moral hazard’ where the banks lends recklessly and get bailed out. That’s why it was introduced in 2009 after the GFC bailouts.

    2009 is not THAT long ago : do people have such short memories?

  6. “What was the point of conducting the banking royal commission when its number one recommendation (among others) is being directly contravened by the government?”
    To distract the public for a year or so and wait for the storm to blow over, duh.

    • happy valleyMEMBER

      +1 Plus, Hayne in his whole legal career had got well used to assessing characters and he would have put Josh in the loose and easy salesman category?

    • Jumping jack flash

      Hayne was an idealist. I think that’s fairly obvious now.
      A realist knows which side the economy’s bread is buttered, and how thick the debt is piled on top of that.

  7. While there may be an element of truth in all the above ASIC shot itself in the foot big time with its jihad on expense verification. Trying to verify future expenses ( an essentially unknowable quantity ) did little for credit quality and annoyed all it touched – particularly consumers . All the while APRA quietly removed its assessment rate floor which caused a huge uplift in leverage and contribution to systemic risk way beyond whatever constraints were introduced by faffing about with endless bank statements and questions about gym membership. But ASIC knew best and now is paying the price.

  8. Jumping jack flash

    “Bizarrely, RBA Governor Phil Lowe also tacitly supported the abolition of responsible lending rules…”

    Not at all bizarre if you understand what’s going on, and what must happen to avert the bcnich scenario.

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