Little has been done to stop white-collar crime in the banking sector despite a number of inquiries and a Royal Commission into fraudulent activity, writes Dr Evan Jones.
IN NOVEMBER 2001, I had published in the Canberra Times an article titled ‘When banks decide to pull the plug’. The article concerned bank malpractice against borrowers, notably against small business and family farmer clients.
I emphasised the structural asymmetry of the relationship between lender and borrower. This is reflected not least in the crucial overdraft facility, formally revokable on call. A bank can use this and other means to unconscionably default and foreclose on its client.
Ancillary parties on the bank teat (law firms, property valuers) are integral to the scams.
In the default process, the bank can drain the client of their remaining resources. The family home is invariably taken as security on the loans (naturally with farming). The foreclosure leaves the borrower destitute and homeless, dependent hereafter on the public purse.
I concluded by claiming that:
‘The judicial and regulatory system is failing aggrieved bank clients.’
In December 2011, I had published in the Canberra Times a follow up article — ‘Banks: still the untouchables’.
There I wrote:
‘A decade later, nothing has changed.’
Customers are disarmed by believing that they are dealing with professionals, a culture in banking that disappeared following financial deregulation but without public acknowledgement.
I provided contemporary instances of ongoing bank malpractice.
I noted the complicity, inaction and indifference of the financial regulators, the financial ombudsman, the relevant bureaucratic class and the political class. I added that ‘The courts are the bank’s best friend’.
I concluded thus:
‘It is long overdue that those in political authority confronted that bank malpractice is systemic and that they acquire some moral fibre in addressing this continuing scandal.’
In April 2016, I had published in the Canberra Times another article — ‘A failed financial regulatory regime’.
There have been multiple inquiries into the sector. The massive 1981 Campbell Report promoted comprehensive financial deregulation, acquiring the status of Holy Writ. The 1995 Wallis Report examined no fundamentals, legitimising the intermeshing of finance sector segments such as banking, wealth management and insurance. The 2014 Murray Report merely dabbled around the edges.
Problems arising immediately from deregulation forced the Labor Government’s hand. The resulting 1991 Martin Inquiry and Report sidelined manifest dysfunctionality, opting explicitly for industry self-regulation on a base of supposedly adequate prudential oversight of sectoral capitalisation.
I noted that ‘The cracks in the current regulatory apparatus are seismic’.
How then have ongoing grievances been met? By a stream of parliamentary inquiries, which go nowhere. They become ephemeral theatre and the status quo remains.
The grievances refuse to disappear and we get no less than a Royal Commission, against dogged opposition from the sector and the Coalition Government.
And what transpires? Exposure of “wealth management” scandals that we knew already from Fairfax media coverage. But the credit relationship, the bread and butter of banking?
Via a media circus, the Hayne Royal Commission hearings conveyed the impression of a game-changing affair. On the contrary. The credit relationship was treated only briefly (week three). Save for a telling diversion into the horrors of family member guarantees, the session was centred on the Commonwealth Bank foreclosure of hundreds of Bankwest commercial property borrowers after the CBA acquired Bankwest in late 2008.
More, the emphasis was not on a forensic investigation of the phenomenon, subpoenaed documents in tow, but a blatant defense of the CBA’s act. The Australian Financial Review applauded. Nobody but the Bankwest victims saw the sell-out.
The complicity of the regulatory apparatus continues apace.
The Australian Prudential Regulation Authority (APRA), created following the Wallis Report, deals only with system stability. It cares more about ensuring bank profits than ensuring banking integrity.
In early 2002, the Australian Securities and Investments Commission (ASIC) acquired sole responsibility from the Australian Competition and Consumer Commission (ACCC) for ‘business to business unconscionability’ in financial services — embodied in an expanded s12C of the ASIC Act. The section is a dead letter as ASIC denies to complainants its legislated responsibility in this domain.
At a 23 November 2015 hearing of the Parliamentary Inquiry into ‘The Impairment of Customer Loans’, senior ASIC personnel admitted that they lacked the will to enforce the law, claiming a lack of litigating firepower.
The obeisance to bank imperatives of the Australian Financial Complaints Authority (AFCA), as with its predecessor the Financial Ombudsman Service (FOS), in other than minor retail complaints is comprehensive. The recent Treasury AFCA Review denies the reality — a whitewash. AFCA personnel remain untutored regarding the asymmetric character of the credit relationship and the capacity for bank villainy.
I became involved in this area after having written an academic article on Australian rural finance. A former customer of the small business/farmer-oriented Commonwealth Development Bank contacted me. He had been unconscionably foreclosed by the CBA parent bank, en route to full privatisation, when it was surreptitiously attempting to dismantle the low-profit CDB during the early 1990s. I outlined the demise of the CDB also in the Canberra Times in August 2001 — ‘A sorry sage of reform off the rails’.
There followed further articles by me and more stories coming to me from other bank victims in a mutually reinforcing dialectic. I have thus acquired a rare understanding of the nature of the beast.
Academics, no matter how dissenting, live in a closed loop of the published word. Never had I contemplated the scale of corruption in business as when reinforcing stories from bank victims accumulated.
I, and limited others with detached experience, have written countless submissions to parliamentary inquiries but nobody in authority wants to know.
These inquiries have attracted myriad submissions from bank victims themselves, reliving their adverse experience. They have had no impact. Does anybody in authority read them?
One can’t have a vibrant mainstream entrepreneurial class in Australia until the banking sector and its regulatory apparatus is fixed root and branch. It is not fit for purpose.
This piece was sent to the Canberra Times to mark its 20 years of reporting of bank malpractice. Current editorial has not expressed interest in publishing it. The article is de facto a tribute to long time (since retired) Canberra Times op-ed editor Cameron Ross, during whose tenure the articles cited therein were published. Under Ross (and stalwart Jack Waterford), the Canberra Times’ opinion page coverage was more catholic in its publishing of material and opinion than was that of Fairfax’s major mastheads.
Dr Evan Jones is a retired political economist.
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