High cost of the warm and fuzzies

Bookmark and Share Ideas & Liberty | John Roskam
Australian Financial Review 7th October, 2016

The bank boss parliamentary inquisition ordered by Malcolm Turnbull has served one useful purpose. It has got bankers doing something they don't do enough of talking about banking.

If bank CEOs spent more time talking about their actual job and less time pontificating about things such as climate change, Indigenous recognition and diversity, maybe the banks wouldn't be in the position they're in. Talking about climate change is easy and popular. Talking about banking is hard.

In large part, the bank bosses have only themselves to blame for the fact that politicians and the public have precious little understanding of how banks operate.

Both Labor and Liberal treasurers have had trouble comprehending that the Reserve Bank does not and should not determine home mortgage interest rates.

Many parliamentarians complain about the lack of competition between the big four banks. What they don't appreciate is that the more regulations Parliament imposes on banks, the more the supposed monopoly of the larger banks is entrenched. Big businesses can afford to pay the costs of regulation - their smaller disruptive competitors can't Which is why the banks will be not too bothered by the extra regulation that will inevitably emerge from these parliamentary hearings.

The irony of Labor MPs telling bank executives how to do their job is rich. It was the Labor Party that gave the country the pink batts disaster, the Building the Education Revolution (BER) scandal and the NBN boondoggle. An earlier version of the Labor Party understood that the government had no rule in owning or operating a bank Banks might be unpopular, but the chances are that more people would choose for their home loan to be provided by a private bank than by a government department And it's almost understandable that Coalition MPs won't defend the banks when the banks won't defend themselves.

There was a time not so long ago when a speech from a bank CEO was more likely to be a critique of capitalism rather than an enunciation of the benefits of free markets.

To be fair, the views of bank CEOs are not very different from those of their peers in other industries.

It's almost impossible to imagine the CEO of an ASX100 company arguing in favour of free speech. Or Brexit Or heaven forbid, that Donald Trump would not be a much worse US president than Hillary Clinton.

On the rare occasion when a CEO does step out of line with the consensus of the political class, the reaction is ferocious. In 2013, the then Myer chief executive Bernie Brookes made the now "infamous", but entirely true, statement that if taxes went up shoppers would have less money to spend in his stores. The particular tax he was referring to was an increase in the Medicare surcharge to contribute to the costs of the National Disability Insurance Scheme. A government bureaucrat, the disability commissioner of the Human Rights Commission, launched a public petition against Myer. Three years ago, Brookes and Myer got no support from the rest of the business community, in the same way the bank bosses are now being left to fend for themselves.

Beyond the issue of what's happening to the banks is a bigger story about the place and perception of business and enterprise in Australia. A plausible argument could be made for the claim that the influence in the public debate of the business community, and especially of big business, is as weak now as it has been at any time in recent decades. This is a phenomenon that is not good for the country's future prosperity. As the voice of the sector that generates wealth grows weaker, the voice of government, and the voice of the handmaiden of government the public sector unions gets louder and stronger.

Successive bank bosses have used their corporate pulpit to promulgate a soft-left progressive ideology that allowed them to explain away the fact that they lent money at a profit. The anti-bank sentiment that now exists in the Labor, Liberal, and National parties is a direct consequence of bank CEOs spending years apologising for themselves.

The current crop of bank bosses must now clean up the mess their predecessors left behind.