Sunday Herald Sun - - Finance -

The “bad” con­se­quences from the bank­ing royal com­mis­sion are more cer­tain to hap­pen than the “good” ones. They will also come more quickly.

Sim­ply and broadly, the good ones fall into two cat­e­gories.

The first is a bet­ter reg­u­lated fi­nan­cial sys­tem and reg­u­la­tors — es­pe­cially the cor­po­rate cop ASIC — which ac­tu­ally work and work in some­thing ap­proach­ing real time, and with banks play­ing by the rules. The sec­ond, bluntly, is not to be ripped off by a bank or other fi­nan­cial in­sti­tu­tion.

Surely, that’s all been the en­tire point of hav­ing the RC. And it’s al­ready worked to the ex­tent of ex­pos­ing the fail­ings and wrong­do­ings of both reg­u­la­tors and the banks. And in­deed get­ting both to ad­mit their er­rors and prom­ise “not do it again”.

Now, all that re­mains is for Com­mis­sioner Ken­neth Hayne to pro­duce his rec­om­men­da­tions and for the gov­ern­ment to im­ple­ment them so that “it won’t hap­pen again”.

Then we would move into a glo­ri­ous fu­ture where no bank would do any­one wrong — and if they did, ASIC or APRA or some­one would jump on them im­me­di­ately and ef­fec­tively.

If only it were that easy. Hayne is go­ing to pro­duce his fi­nal re­port by Fe­bru­ary. That will ar­rive smack in the mid­dle of ei­ther a real or phony elec­tion cam­paign.

On one level that makes for a pretty good chance of what he rec­om­mends be­ing ac­cepted by both sides on a bi­par­ti­san ba­sis. The gov­ern­ment in par­tic­u­lar is hardly go­ing to take a “probank” ap­proach by re­ject­ing them.

How­ever it also means it will tend to get lost in the usual dy­nam­ics, prom­ises and at­tacks of an elec­tion cam­paign. In more prac­ti­cal terms, this time frame post­pones any sig­nif­i­cant leg­isla­tive or reg­u­la­tory ac­tion into the back-end of 2019 at the ear­li­est.

For those who see the banks as need­ing the very tough­est and tight­est reg­u­la­tion and more ag­gres­sive ac­tion by the reg­u­la­tors, the good news is that it will all al­most cer­tainly be over­seen and de­liv­ered by a Shorten La­bor gov­ern­ment.

That is to say, by the side that wanted the RC as con­trasted with the side — the Coali­tion gov­ern­ment, de­spite the urg­ings of some of its mem­bers — that did not want it.

For all that I re­main scep­ti­cal that we are go­ing to come out the other side of this with quite what those who be­lieve the banks are bas­tards ex­pect.

There’s also a far more po­tent, far more real re­al­ity.

A Shorten La­bor gov­ern­ment will be de­liv­er­ing the re­forms to make banks and reg­u­la­tors work bet­ter. It will also be de­liv­er­ing other poli­cies that will neg­a­tively af­fect both banks and their cus­tomers.

It will also be de­liv­er­ing all this in an eco­nomic and fi­nan­cial cli­mate that might well have turned colder.

All this is why the “bad” con­se­quences that will flow from the royal com­mis­sion — quite ir­re­spec­tive of the fu­ture pol­icy and reg­u­la­tory changes them­selves are both more cer­tain and will come quicker.

These fall into two cat­e­gories. They are the rev­enues that banks lose, which they will at least partly seek to re­place by charg­ing cus­tomers more heav­ily or more di­rectly for ser­vices; and cut­ting back on loans.

They will be los­ing rev­enues they should not have been get­ting in the first place. But they were also us­ing those rev­enues to cross-sub­sidise other ser­vices. Now, they will charge for those ser­vices di­rectly.

They have been ac­cused of mak­ing loans to bor­row­ers they shouldn’t have. They won’t only cut back on those loans but in­deed on loans to bor­row­ers more broadly.

It’ll be­come much harder to get a loan in the fu­ture and you will prob­a­bly pay more for it or the as­so­ci­ated costs.

This will col­lide di­rectly with La­bor’s three-pronged at­tack on in­vestors — re­duc­ing neg­a­tive gear­ing, in­creas­ing the cap­i­tal gains tax and end­ing the re­fund­ing of ex­cess frank­ing cred­i­tors.

There’s a le­git­i­mate case for all of those moves — I per­son­ally would have done some of them dif­fer­ently.

But le­git­i­mate or not, they will be de­liv­ered — thanks to the near cer­tainty of a LaborGreen Se­nate ma­jor­ity; and they will add to the dy­nam­ics of bank­ing re­form to make ac­cess to bank credit much harder and also more ex­pen­sive.

A sim­i­lar mix of forces is go­ing to hit su­per­an­nu­a­tion and fi­nan­cial ad­vice. There’ll be (ap­pro­pri­ately) more di­rect fees and other charges, at a time when the earn­ings dy­nam­ics will be both harder and less prof­itable.

Then all this will both play into and in­deed af­fect what’s hap­pen­ing in the econ­omy through 2019 and 2020.

It’s not an ar­gu­ment against do­ing it, just a state­ment of con­se­quence and tim­ing.

There’s a big thing that’s also been lost in all this. The vast ma­jor­ity of Aus­tralians have not been ripped off by their bank.

Self-ev­i­dently they then don’t pick up the ben­e­fit of not be­ing ripped off. But they will still be pay­ing the cost of the higher charges and tougher lend­ing ac­cess.

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