Bad Apples or Biased Barrows? The Banking Royal Commission

The revelations of the Banking Royal Commission have so far yielded much tortuously teased out truth, but await further revelations of justice and reconciliation. Even former merchant banker and Royal Commission sceptic, Malcolm Turnbull has turned decisively bearish about the banks’ behaviour. Treasurer Morrison who ridiculed the commission ideas a con job is now self-appointed judge and jury dishing out long jail sentences. Meanwhile, Bill Shorten gloats and rightly demands reparations for victims. But what will be the fruits of the commission in terms of ongoing corporate character? Is the answer just to punish a few bad apples, rogue financial advisers, cutting a few bruises out and a spit and polish? Or is the problem a biased wheel on the barrow, leading the whole sector in a reckless and erratic pursuit of profit before people.

Amongst the recent revelations, both before and after the Commission, the Commonwealth Bank and AMP have been most shamed so far, costing them their CEOs, albeit with a golden parachute and soft landing. The Commonwealth was once government owned, with exclusive access to schools, with their little green piggybanks. It has done little to rein in ill-educated and reckless financial advisers and their cavalier attitude to retirees’ savings. Comminsure’s outdated, pedantic and legalistic medical standards deprived many of timely care, some with deadly consequences. Comminsure has now been sold off at a massive write-down in value, ironically not pleasing pampered shareholders whom they’ve favoured over customers. Further, 50,000+ cases of money laundering ATM transactions were allowed. Austrac is taking legal action. But the head of that Commonwealth Bank department, Matt Comyn was unanimously chosen CEO. The dereliction of duty by three divisions of the company proves that these are no mere bad apples but a systemically biased barrow.

As I write, the AMP, formerly Australian Mutual Provident, has been seen to have spectacularly failed to live up to its name. There is nothing ‘mutual’ or ‘provident’ about its recent actions right up to the highest levels. It has been shown to be a serial liar, over 20 times to regulator ASIC. It has been caught as red-handed as our cricketers, for a document, not ball tampering, involving 700 document exchanges and much doctoring, with board approval, of a supposedly independent Clayton Utz report.

Other banks, ANZ (which, admittedly, runs excellent financial literacy programs with the Brotherhood of St Laurence), Westpac and NAB, have been charged for rate rigging, though Westpac continues to fight charges. NAB has been nabbed for a bribery and fraud ring. According to an ASIC report, c. 200,000 bank customers were regularly rorted of a total $178million for non-existent advice across the sector. Fee for no-service policies climaxed in a person being billed for years after their death.

After this catalogue of corruption and incompetence, Stephen Bartholomeusz rightly asks, ‘Why do people park their ethics in the driveway as they go to work?’ (The Age, Business, April 20). He questions the common wisdom that it is due to the incendiary, turbo-charged incentive system in higher finance that nice family people become moral monsters at work. Perhaps they just have a ‘conscience vote’ view of morality, as applying to private ‘moral issues’, birth, death, sexuality, at the domestic borders, not the centre of work and public life, seen as a more amoral, or ‘morality-free zone’. Business is business.

Bartholomeusz sees a more subtle process of siloed, insulated people formation operating in corporate institutions. He is on the right track though he doesn’t go as far as theologian Reinhold Niebuhr. Niebuhr’s Moral Man, Immoral Society (1932) unpacks why good people do bad things, especially for a corporate entity they are committed to. It subtly shapes their conscience, wrestling it into submission to a corporate consciousness out of misplaced loyalty. This gives horrific, dehumanising acts a halo. For every case of The Wisdom of Crowds, there are at least equal numbers of their folly. Niebuhr seems on the same page here as the great Dane, Lutheran philosopher Soren Kierkegaard. They would both be impressed by the individual integrity and courage of those who’ve blown the whistle on bullying banks.

How should these systemic problems be addressed? Sociologist Philip Sampson notes two key responses to banking crises: ‘moralistic, and administrative’. First, moralism looks for a scapegoat, a universally human response analysed in Rene Girard’s The Scapegoat. Greed is the cause and greedy bankers its incarnation. Get rid of the lot! Stick them in gaol, more black letter law, more punitive punishments! Chuck the rotten apples out of the barrel. Scott Morrison has increased maximum prison time to ten years for individuals and up to $210 million for companies and possible civil penalties for c. one million for individuals and ten million for companies. The government is beefing up ASIC’s powers.

Adele Ferguson, who has reported many bank malpractices, and Melbourne Anglican and Melbourne University Corporate Law professor Ian Ramsey, agree that ASIC already has powerful tool s but often fails to use them, especially against the big end of town. Like the tax office, small business is their favoured prey,

Second, Sampson sees the administrative or regulative response as nostalgically seeking to restore traditional prudential banking through the legal process and bureaucratic administrivia. But ‘traditional banking relied on a world of paternalistic trust that will never return. The level of personal knowledge, of community stability, and of adding machines no longer exists. The detailed state regulation required may not only be ineffective, it could also increase state power and weaken banking independence’.

Alan Fells, Australian Competition and Consumer Commission chair, advocates forcing banks to sell off their relatively recently (mid-noughties) acquired financial advisory and wealth management businesses due to their endemic conflicts of interest, confusing objective, professional advice and selling prostituted bank-owned products. Laws such as the Oxham-Sarbannes law in the US, separating traditional banking from the newer more speculative forms, had some useful effects, until Bill Clinton foolishly threw them out, preparing the way for the GFC.

Australian banks have generally been much better regulated than the US. Australia’s avoiding the GFC was largely due to a trio of Christians. Ian Harper played a key role in the Wallis Banking Inquiry and Reserve Bank Governor Glenn Stevens kept a steady hand on the wheel. Kevin Rudd decisively pumped up the economy as Joseph Stiglitz lauded this week.

Rules are necessary but must be applied with timely wisdom and judgement. Regulation is necessary but insufficient. It cannot provide an inner moral compass or character, the virtues embodied in names such as Prudential or Provident. These are needed for restoring trust and transparency. Francis Fukuyama showed this in his book Trust. The lack of character and trust that you can bank on is costly. Not being able to shake on it leads to massive legal and bureaucratic costs. To bridge the gap between big banks and the average punter requires careful, long-term restoration of the massive truss of trust in institutions and professions. The banks are a good place to start this broader social process, precipitated on many fronts, by severe social erosion.

Dr Gordon Preece is Director of the Centre for Research in Religion and Social Policy, University of Divinity (, Director of Ethos (, and minister at Yarraville Anglican. He chairs the Melbourne Anglican Social Responsibilities Committee. These organisations are partnering in a Faith & Work Award dinner at Ridley College on 28/5 on Higher Finance, to be addressed by awardee Glenn Stevens and Professor Ian Harper.