It’s indisputable that the Commonwealth Bank hasn’t had a great time lately.
Sure, it recently turned in a record $9.93 billion profit, but Australia’s biggest bank has been hit by scandal after scandal.
First there was it’s involvement in lending to customers caught up by the Storm collapse, then the financial planning scandal, a series of complaints against CommInsure and finally the massive money laundering scandal, which could easily cost the bank billions of dollars in penalties.
While previous scandals were dismissed as “isolated incidents” by CBA, for regulators the money laundering scandal was the last straw.
Two weeks ago, banking regulator APRA announced an independent inquiry into governance, culture and accountability at CommBank.
On Friday, APRA announced the panel who will conduct the review.
All three panellists are eminent members of the business and financial world.
Jillian Broadbent was a long-serving Reserve Bank board member, along with stints as a non-executive director with Coca-Cola Amatil, ASX, Woodside and Qantas.
Graeme Samuel is best known for his eight years in charge of Australia’s consumer and competition watchdog, but also has extensive experience in the financial sector.
John Laker rounds out the panel — he was in charge of APRA until the end of June 2014.
And that is where the potential doubts about Dr Laker’s appointment arise.
“My first reaction when I saw his name announced was, ‘gee, that’s a bit poacher turned gamekeeper’,” said banking analyst Martin North from Digital Finance Analytics.
“I guess he also would have significant experience of CBA and the way it’s interacting with the regulator, so I guess it’s a bit of a two-way street.
The potential conflicts are obvious.
Most of CBA’s problems arose prior to July 2014.
As APRA’s then chairman, Dr Laker was responsible for the organisation that was supposed to be keeping an eye on CBA, ensuring that its finances, governance and risk culture were shipshape.
If it turns out that the Commonwealth Bank was seriously deficient in any of these areas, the review will require Dr Laker to sign off on a report that may highlight errors or oversights by APRA and himself as its boss.
That’s not to say he can’t or won’t do that if it’s called for, but it’s a potentially awkward position to be in.
CBA not unique amongst banks behaving badly
Dr Laker’s appointment is not the only flaw with APRA’s CBA inquiry.
While the nation’s largest bank has probably been embroiled in more scandals than the others, all of the big four have been found to have acted against the interests of consumers in numerous instances.
Martin North argues that’s because the short-term profit motive reigns supreme.
“In the process of trying to maintain shareholder returns at levels that investors are wanting are they compromising customer outcomes?” he asked.
“There’s been a litany of things over the years where things seem to have gone wrong and people tend to say, ‘well these are isolated events and issues’, but when you put them all together you start to wonder whether there’s a more structural set of questions that need to be thought through.”
The banking regulators appear to appreciate there’s a wider problem.
“There’s no quick fix here, it’s a deep-seated issue in the view of the community that there is a lack of trust,” APRA’s current chairman Wayne Byers told a business lunch in Sydney last week.
“The drip feed of issue after issue after issue just reinforces the view that’s out there,” Reserve Bank deputy governor Guy Debelle said at the same event.
Unfortunately the CBA review will not deliver that.
Not only is its credibility undermined by a panellist who many will conclude has no incentive to look into the darkest, dustiest corners of the cupboard, but also by its focus on just one bank.
Mr North isn’t really sold on a banking royal commission, but he does think a much broader inquiry into retail banking and wealth management across all the major institutions is what’s needed to restore trust.
“There is a bigger question about the way that the financial services sector operates in Australia,” he said.
“At the moment, there isn’t an appetite or a willingness to really pursue that, but I think that’s what we really need.”
In the meantime, it appears the burden will remain with investigative journalists such as Adele Ferguson to continue their piecemeal exposure of the financial sector’s dirty deeds.