A lack of competition is the cause of the failings that have undermined Australia's banking sector, with a royal commission posing as a distraction from holding banks accountable and driving change, two consultants have said.
Following a recent study that found Australians are in favour of a royal commission, researcher at Griffith Business School Dr Katherine Hunt and chief executive at TruePillars John Baini say a royal commission will prove ineffective in driving industry change and the government must move beyond public shaming and punishments in order to hold banks accountable.
Speaking to ifa, Mr Baini says the solution to keeping the Big Four in check is increasing customer’s alternatives.
"If you actually want to change conduct and culture a royal commission is not the right path to take,” Mr Baini said.
“Bad conduct from banks happens because of lack of competition. The banks behave badly because they can and because there is no consequence as customers don't have clear alternatives.
“The path that both the government and other interested parties are going down is a carrot and stick scenario. They’re very much focusing on the stick, and with the royal commission - all it can really do is recommend some changes to policies or even some penalties, but it takes years and a lot of money and in the end it doesn’t make much of a difference.”
Mr Baini said the government needs to actively support non-bank lenders so they can provide real competition.
“They can support by actively lending on platforms, by forcing comprehensive credit reporting and forcing referrals when banks turn down business loan applications,” he said.
In a statement, Dr Hunt said the greater number of banks in the US and UK inhibit the influence and control of a select few:
“They can’t control the regulations that govern them because there are so many of them competing with each other,” she said.
“Relative to the rest of the world, we have a problem with very low competition between our banks.
“Is it naive or stupid – one or the other – to imagine we don’t have all the information already? We already know enough to act. The question is whether the political backbone to take decisive action exists, and a royal commission is not going to answer that question.”
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