BANKING ROYAL COMMISSION – LESSONS LEARNED

The primary outcome of The Banking Royal Commission is that unregulated markets just don’t work because of the greed factor,and equally weak regulators lead to bad and even criminal behaviour. So it comes as no surprise that the regulators have been given much stronger enforcement powers and bigger budgets to enforce them. Banks have suddenly found a social conscience and now realise customers are the only reason they exist. Go figure !!. What went so badly wrong to cause this ?
I would argue the primary problem has been a financial bonus/incentive culture perpetuated from the very top that has rewarded the wrong things i.e. bad behaviour. Why would anyone do that? Well its not hard to understand that most people are secular in todays society and like money to prove their so called “success” i.e. the greed factor.
Monetary rewards only lead to selfish behaviour and also lead to scrupulous individuals getting away with it because they deliver the dollar profits irrespective of the collateral damage. Management perpetuates this bad behaviour and is far too often compromised by the performers as they too are after the bucks. Just look at the compensation packages of senior bank executives. All the while they operate a cosy oligopoly backed by a Government guarantee. You might ask ” how good is that? ”
The stockmarket as we know rewards performance because it is so focused on short term returns and is less inclined to consider the qualitative issues. Boards too often buy into this mantra otherwise their positions are at risk.Accordingly, the super funds which are in large measure the major investors have a responsibility to change their behaviour as after all they are actually owned by
the men and women of Australia. What is their social licence in this respect?
Sadly, the numerous cases coming out of the Royal Commission are further evidence of a moral and ethical decline. Its reflective of a culture that says if you can get away with it then it is ok. The fact is, it is clearly NOT ok. There was a time when most people knew or had a sense of what is right and what is wrong. Now it seems if you are not challenged it is probably ok, or worse than that our standards have declined so much we don’t even know where that line is.We now need regulators to do that job for us.
I think the entire compensation system in banking needs a rethink. Yes we do want to reward people that perform, but there should be many measures beyond just the financial. Importantly, the change needs to come from the top. To date there is sadly little evidence they have come to grips with the problem other than the cosmetic public pronouncements. However the momentum is certainly there for change, and The Royal Commission has proved its worth. You may ask why did the Liberals object so often to its formation. Just another example of being out of touch with the real world. A positive outcome now for all concerned but the challenge lies ahead to evidence things have changed for the better

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