Do We Need A Royal Commission Into The Banks?

Short answer: No. However I wouldn’t oppose one either.

Let me explain.

Firstly, there is a very, very, fine line between unconscionable conduct and corrupt behavior.

Case in point, Comminsure. One month ago Comminsure had their brand torn to shreds by the ABC’s, ‘4 Corners’ program. Whilst their behaviuor was unscrupulous to say the least, they never broke the law. Unconscionable yes, corrupt no.

Secondly, the Australian banks are some of the most heavily regulated banks in the world, thanks to APRA (Australian Prudential Regulatory Authority). This doesn’t mean the banks are impervious to corruption or APRA doesn’t miss a trick. It just means they are already under the watchful eye of a regulator, however that still doesn’t sweeten the sour taste in most bank customers mouths.

And that’s where Bill Shorten played a smart hand recently.

A few days ago he declared he would have a Royal Commission (RC) into the banks if elected. He may be chasing the populace vote, but he’s also on a winner because he knows there is little electorate sympathy for the banks.

As expected, the response from all corners was on cue. The media whipped themselves into a frenzy, the electorate made a collective fist pump, while some within the Liberal Party started throwing all their toys out of the cot. As usual, Prime Minister Turnbull was busy plucking the fluff out of his navel.

The reason I don’t think a RC would have the desired effect is because it won’t change much. Consider the RC into sexual abuse. What do you think will happen when that RC has finished and been deconstructed? Do you honestly think it will be the end of sexual abuse?

Yes, the victims deserve vindication and compensation, but it still won’t solve the problem.

And what about the RC into trade unions. That hasn’t changed a thing either. Right now the Labor/Greens coalition refuse to reverse the decision made by the Road Safety Remuneration Tribunal because they are at the behest of the AWU. Consequently we have 35,000 owner operator drivers about to go to the wall. It’s a dirty, stinky deal and Shorten has his finger prints all over it.

Solution
ASIC need to grow some teeth. The banks, as well as every other corporate, need to know there is someone willing to jump on them from a high height if they step out of line. ASIC are that wet, weak and pathetic I doubt they could pull the scum off a rice pudding.

And if Shorten or Turnbull want to make men of themselves around this issue, they could begin by putting a big broom through ASIC and start again.

Yes, there is unconscionable behaviuor that needs to be removed root and branch and the culprits deserve to be exposed and dealt with. But I’m not convinced a RC would have the lasting effect on the banks we are hoping for.

Why Customers and Investors Won’t Run
Let’s say you’re a customer of CBA with $10,000 sitting in cash. What would you do?

I.  Put your money in a CBA term deposit at 2.8%, or
II. Invest in CBA shares currently offering a fully franked (after tax) yield of 7.67%. Grossed up that’s equivalent to 10.89% in a pension account.

If you baulked at investing your money in CBA shares (and I’m not suggesting you shouldn’t), why would you trust them to hold your money in a term deposit? After all, it’s the same business.

You can’t have an economy without the banks and with a growing population and digital transactions greater than ever, that’s not about to change.

And that’s why investors still consider the banks to be a safe bet because they are in the business of being intermediaries and offering peace of mind for consumers. If you’re not convinced, try and find somewhere safer to store your money or make a loan.

The mathematics of it all still make the banks a very sexy proposition. It’s a love hate relationship that will never change.

That said, a little more love would be nice.

Have a great weekend!

Adam

Farmhouse – for the past month, legs of lamb have been on special for $9kg at Woolies. That’s about five bucks a kilo less than minced beef. Bargain.

Anyway, I’ve been trialing a few different recipes lately and so far my favourite is to slow cook a leg for four hours in red wine, stock, onions, rosemary, thyme and garlic. Delic!

And now I’m not sure what’s nicer…the roast or left overs the next day with some fruit chutney!

Seriously, if you thought that CBA dividend of 10.89% looked yummy, wait until you try this!

If you would like a copy of the recipe, shoot me an email and I’d be happy to share.