Matt Keogh (Burt, Australian Labor Party) Share this | Hansard source

I rise to speak on the report of the Economics Committee, which I have appointed to, and its review of the four major banks—its first report of that review. I think it is important to reflect upon the history that led to the establishment of this inquiry. It was a unique establishment of an inquiry because it was announced before the parliament really even got started after the election. It was announced in the context of banks failing to pass on interest rate reductions after the cash rate was reduced by the Reserve Bank of Australia. It was in the context of greater and increasing calls by members of the public, by the community and by the Labor Party in response to many scandals that we have seen developing in our banking sector and to calls for a royal commission. The government, being a government that is all about defending banks, decided that to avoid the calling of a royal commission it would instead refer an inquiry to the Standing Committee on Economics of the House. Thus we have produced this report after meeting with the CEOs of the four major banks.

In respect of that I think it is important to understand, as I mentioned, this was announced before the parliament had even really resumed its work following the election. We had a situation where there were only a matter of days after the formation of the committee before it had the bank CEOs appearing before it—all prearranged before the committee's membership was finalised. For me, having come out of a prosecutorial background, having been a commercial litigator, one of the key failings that I was immediately confronted with was the very limited time and scope that was provided to the committee to undertake its inquiry. Not only did we only have days between being appointed to the committee and holding hearings with the bank CEOs, there was no opportunity for public submissions before the CEOs appeared before us and, critically, we really only buried down so that each member of the committee had approximately 20 minutes to ask questions of the CEOs. I am sure, as we have seen during the course of that inquiry's hearing and after, there are many, many more questions to be asked of the banks than is allowable through 20 minutes per member.

I would like to turn to a number of things that have been covered in the content of the report and were covered during the inquiry and those hearings with the bank CEOs. I think it was abundantly clear that the bank CEOs understand that there is quite a public distaste for some of the unethical behaviour and the ripping-off of customers that has been seen by the big four banks here in Australia. During the course of the inquiry we were able to speak to those CEOs about a number of issues that have been raised through many other inquiries, but still during the course of that questioning there were many other things that had to put to those banks on notice about those inquiries. They did provide some of that information to us. Of course, they provided that information to us largely in a way where it was to remain confidential—we are talking large, large volumes of material, which was very difficult for members of the committee to completely get across in the very limited time that was then provided for the reporting process. Of course, my heart really goes out to the staff of the committee, who were put under some pretty egregious time frames. Given the volume of material and the concepts that they had to deal with, I think there was very limited time made available to them.

As I said, the RBA cash rate was really in a way what started this committee inquiry. The banks took great pains to say to members of the committee that the RBA cash rate is not in any way directly linked to the interest rates that they charge their customers. One thing that came out of exploration by the committee was that that disconnect between the RBA cash rate and the rates they actually charge has seen the profitability of the banks in Australia rise to a point where it is amongst the highest of any banking sector in the world. Essentially the banks have been able to take advantage of consumers in Australia when compared to what other banks around the world have been doing. This largely seems to be something they have been able to do because of the great market power that the four major banks have in Australia.

There are many things I need to cover, so I will move on. Some things that came out during our inquiry and talking to the bank CEOs and, critically, also listening to bank customers and looking at the other scandals that have arisen in the banking sector were the key issue of the linking of remuneration to sales by financial advisers and staff within banks cross-selling banking products, the way in which perverse outcomes arise from the vertical integration model exercised by those banks and, critically, the negative culture that can be created within banks as a result of those two things.

I explored during the hearings with the big banks the need to make sure we have better accountability for the executives and senior personnel within banks, and at least conceptually the banks, ASIC and APRA in other hearings have agreed with this. I spoke to the bank CEOs during the inquiry about concepts that have been adopted in the United Kingdom. The UK Prudential Regulation Authority and the UK Financial Conduct Authority have established a new framework that is focused on accountability of individual senior executives and then going down through these financial organisations. It makes sure that there are senior people who can be held to account when things go wrong—when customers face trouble and when systemic issues arise in banks. The banks in the UK have to now make clear the senior executives who are responsible for areas of practice within the bank and they have to be certified to be able to perform those roles. They are responsible for the staff under them being appropriate to fulfil the actions within the bank and they will take responsibility when things go wrong.

The report from Labor members of the committee also looked at the recommendations made by the majority of members of the committee. It did raise a number of concerns. I refer anyone interested to the matters we raised in respect of the recommendations about a tribunal from the majority of members of the committee, the government members of the committee. We found in the course of the inquiry that the tribunal idea had been raised with the bank CEOs by the Prime Minister and the Treasurer well before we got to these hearings, as well as of course then, before we had published a report of this committee, being the subject of a separate referral by the government for further investigation.

The recommendation that was made by the majority of committee members really left a number of open-ended issues that need to be resolved. Who is going to preside at this tribunal? What are the jurisdictional limits that will apply? What will be the scope of the matters it can deal with? What procedures will apply? What avenues of appeal may or may not exist? Not to mention: what is the constitutionality of the existence of such a tribunal? Will it be a chapter III institution? Will it be an executive institution? Government members seem to be confused as to whether it might just be a private body altogether.

Let me say, especially as a former President of the Law Society of Western Australia, that I find the idea that lawyers would be prevented from participating in such a tribunal to be completely abhorrent. In addition to that, it also fundamentally misunderstands the advantage of the banks in such a situation. The banks have teams of lawyers at their disposal behind the scenes and customers will be disadvantaged by not having access to lawyers.

I want to mention a number of things very quickly before my time expires. One is the chair of the committee spent a lot of time questioning bank CEOs, and indeed ASIC in other hearings, on the idea of a tracker mortgage, being a mortgage that would be offered by banks that would follow—track, if you like—the RBA cash rate. The banks did go to some length to try to explain why they thought that was a bad idea. I have to say that I thought they did a terrible job of explaining why it was a bad idea. I thought they could have articulated that message better. But, given all of the time that was spent covering that issue, I was shocked, to some extent, to find that that did not get any mention in the report produced by the majority of members of the committee. There is no mention of that issue whatsoever.

One of the things that I have found almost abhorrent in the behaviour of the banks in the conduct of this inquiry is this. The committee was scheduled to make this report to this parliament on Thursday of last week. For reasons not quite clear to me, it was necessary that the report be made on Thursday last week. As soon as the report was handed down, as soon as the work of the committee in this first tranche of its examination of the behaviour of banks in this country was made public, once our work had concluded in that way, the big four banks of this country moved—the day after—to increase the interest rates that they charge consumers on mortgages, completely out of step with any action taken by the Reserve Bank of Australia. I think that demonstrates quite clearly the need for there to be a royal commission into banks in this country.

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