Watchdogs underfunded
customers from low-risk to high-risk products without their knowledge.
Those who tried to take the banks to court found themselves drowned by ever-rising legal costs.
The banks didn’t even look after their own staff. Matthew Attwater, named Employee of the Year by the Commonwealth Bank of Australia in 2010, turned on the bank when an insurance product it offered did not pay out for his severe Ptsd-like symptoms.
But could it happen here? And what would stop it? Last year, the joint regulators, the Reserve Bank and the FMA, launched a probe into banking conduct and culture. They found nothing serious, noted ‘‘no widespread misconduct or cultural issues’’, and moved on.
The Hisco scandal on its own should be enough to call this into question. There clearly were culture issues – we just didn’t look hard enough.
It was no surprise to the industry, which was expecting a limp report. The Reserve Bank was initially reluctant to call an inquiry, and bowed to mounting public pressure only as revelations from the Australian royal commission began to mount.
But insiders acknowledge our inquiry was the bare minimum that could have been done.
And it’s not as if the Reserve Bank and the FMA had the ability to do much better. They are underfunded, chronically so in the case of the
FMA. This watchdog, which supervises some of the most complex parts of New Zealand’s $350 billion economy, runs on roughly $36m a year. Two-thirds of that comes from an industry levy, with just $10m coming from central government.
Banks are complex and regulating them is expensive. Australia’s Banking Royal Commission cost roughly A$75m (NZ$80M). In its aftermath, the federal government announced an additional A$550m (NZ$580M) would be given to regulators to keep the banks on a short leash.
New Zealand’s regulatory spending is paltry by comparison, and it should be increased.
Some might argue banks should do a better job of looking after themselves and save the taxpayer from handing out money to keep them in line. I have some sympathy for that argument. The FMA is already two-thirds funded by a levy on the banking sector. This should be increased to finance a massive expansion of the FMA and the Reserve Bank’s regulatory heft.
Banks have the money. They made roughly $5.2b in New Zealand last year. It wouldn’t be the worst thing if some of that money were put to good use protecting their customers.