Just how bad are our banks?
08 . 10 . 18
By Ignatius Wilson
You might think that the Royal Commission into banking and constant media coverage of financial crimes and misconduct makes our financial services industry a bad egg in the international financial landscape.
The CBA’s automated deposit-taking machines being used for money laundering, the federal government’s misuse of debt collectors and Macquarie Bank’s attempt to rig overseas currencies all point to financiers with a criminal element and government acting less-than-prudentially when it comes to its dealing with its own citizens.
In actual fact, we hold up well when compared to other nations. On a broad economic context we observe the sub-prime mortgages, originating in the United States, precipitating the GFC in 2007. We can also consider Zimbabwe’s or Turkey’s abysmal currency performance owing to poor domestic economic management over the last years and decades. Even New Zealand has experienced issues with oversight on foreign investors very recently.
Leaving macroeconomics aside, one way of considering our banking sector’s standing on the world stage is to consider how much money in fines and compensation they have paid. Fund manager Mike Mangan has compiled a list of all fines and compensation paid by Australia, the UK and the US since the GFC and he ranks Australian banks as most law abiding since 2007.
Using some basic arithmetic we can normalise his figures for per country to per capita. There is a striking gap between these three numbers, with Australia’s banks paying $40 per person since 2007, US banks paying $629 and the UK’s banks paying $1709 per person in fines and compensation since 2007! However there are some confounding factors at play here in the original data.
One of these confounding factors is especially pertinent to the findings of the Royal Commission. This is the lack of oversight or will to enact penalties by our regulators. Other countries’ regulatory regimes may be harsher, more effective or more proactive. This is why the figures from the US and UK are so much higher.
No one would claim the UK banking system is 42 times worse than Australia’s, but this is what the numbers claim when seen in isolation.
Depending on how you look at it, our financial services industry still does stand up well compared to other countries. Of course, there is a long way to go for large organisations to optimise their behaviour and because the vast majority of transgressions are against customers, it bears remembering that while these businesses are publicly listed, their primary responsibility is to their shareholders (to make them money) not their customers whom the money is coming from.