Public anger builds and banking oligopoly and corruption are set to continue as Turnbull announces banking tribunal instead of a royal commission. John Passant reports.
OH, THE BANKS, the poor banks. My heart bleeds for them.
At the end of the proceedings, Prime Minister Malcolm Turnbull announced a banking tribunal to investigate customer complaints. The arrangement was clearly cooked up in cahoots with the banks to deflect widespread anger with the banks’ mistreatment of customers and the super profits that arise in part as a consequence of that mistreatment.
A tribunal is, the Turnbull Government and banks hope, a way to avoid having a royal commission. Unfortunately for them, the public anger with banks is so widespread and the support for a royal commission so overwhelming that the paper tiger tribunal will not kill that anger.
Because of its close links to business and their chiefs, the Liberal Party is more likely to rule in the interests of specific and powerful sections of capital like mining and banking. The ALP’s institutional links are the trade unions and a vaguely leftish membership. This makes it a little easier for a Labor government to implement policies that are in the interests of capital rather than for sections of capital. The previous Labor Government's carbon tax and minerals resource rent tax are recent examples of this rule for capital – not capitalists – approach.
The demand for a royal commission into the banks is extremely popular. For example, a September 2016 poll by the Australia Institute found that the overwhelming majority of voters – 68% – want a royal commission.
However, there is a capitalist logic behind the ALP’s call for a royal commission. The banking oligopoly through their super profits are clogging up the wheels of capitalism. A royal commission is likely to canvas totally capitalist solutions to this — tax, more competition, or thorough regulation of the industry.
As the National Archives site points out, the Hawke Government in its first five years began to deregulate Australia’s financial system. It floated the dollar, removed controls on interest rates and allowed foreign banks into the country.
The philosophy underpinning this latter move was that competition would drive down costs and interest rates and provide better services for customers, thus improving Australian capitalism. The reliance on competition was itself a flawed strategy. It did not deliver benefits for customers.
Westpac, NAB, ANZ and the Commonwealth Bank dominate the banking and finance industry. They are an oligopoly. They own about 80% of financial assets in Australia. They are the most profitable group of banks in the world and have been for some time. Their return on investment is more than double that of other banks in comparable countries.
The banks make up about 9% of the economy, a disproportionate amount when compared to other countries.
'The big four banks account for over 25% of the market capitalisation of the ASX 200, and are valued at over $360 billion. In total, the four banks reported assets in 2015 of some $3.5 trillion or about 10 times the size of BHP and RIO combined, and profits for their latest financial year of over $30 billion between them.'
The banks’ super profits are a consequence of their domination of the market, government guarantees and their more or less similar responses to changes in the market.
There are two main ways this plays out.
First, their dominance means that through overpriced home loans on overpriced houses and credit card debt, they effectively cut workers’ wages and living standards. One of the consequences of this, especially in times of falling wages and/or a falling share of national factor income going to labour, is greater reliance by workers on debt to seemingly sustain their living standards. At 125% of GDP, household debt in Australia is at record levels and is one of the highest in the world.
Second, the banks’ business lending is also overpriced and is effectively a redistribution of profits from other businesses to the Big Four banks.
The banks’ lending trends over the last two decades have seen a shift from business to residential and commercial housing. Lending to business now makes up one-third of the big banks’ portfolio, compared to two-thirds 20 years ago. Yet the overconcentration on house lending is bad for the other sectors of capital, because it diverts investment from productive to less productive areas.
As ABC reporter Michael Janda puts it:
While these BIS [Bank of International Settlements] economists are not representing an official position of the bank, their working papers highlight how banks not only fail to support an innovation nation, but actually impede it.
This occurs not only because they tend to prefer financing 'safe' low-productivity residential and commercial construction and property flipping, but also because a large and rapidly expanding financial sector soaks up the nation's best minds.
So what can we do? Some pundits argue for greater banking competition. Yet more competition leads to more concentrated ownership. The GFC, for example, wiped out some of the smaller banks and other lending institutions and saw the market share of the Big Four increase.
They are too big to fail. Indeed, given their weight in the Australian economy they are, according to APRA's executive general manager of supervision and support Charles Littrell, "too big to [even] get sick".
In my dreams, I imagine a government nationalising the Big Four. Chifley tried that back in the 1940s, for reasons more to do with his vision of state capitalism. The High Court decided it was unconstitutional. Short of banking staff actually taking over their workplaces and running the banks for the benefit of other workers – nationalisation from below – there is not going to be any state nationalisation of the banks in Australia.
In 1912, the first Federal (Fisher) Labor Government set up the Commonwealth Bank (a people's bank) as a government bank. In 1991, Labor men Paul Keating and Bob Hawke began its privatisation.
Bill Shorten’s Labor Party could, of course, promise to set up its own version of a people’s bank and undercut the massive profits of the current banking oligopoly. They won’t. It is not in modern Labor’s DNA to take such a step.
That leaves a super profits tax to recoup some of the $10 to $15 billion of super profits the banks make annually and return it to you and me in the form of better social welfare spending. Even this won’t be on the agenda. Far better a royal commission that identifies oligopoly and lack of competition as the problems, and more competition among the banks as the way forward. It won’t work because banks that are too big to get sick will of necessity retain their position and the support of government.
Maybe it is time the tellers earning $50,000 a year took over running their banks. They’d do a better job than the $10 million men currently running these money vacuum cleaners attached to our wallets.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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