The mounting scandals being revealed by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry highlight the need for a comprehensive and radical solution to the crisis in the banking system.
The Big Four banks must be nationalised so people can take back their stolen wealth and a new public banking system must be created under democratic community control.
The royal commission has heard evidence of appalling behaviour by the major banks and financial planners from the past decade, including with allegations of bribery, forged documents, repeated failure to verify customers’ financial positions before lending money and selling insurance to people who could never claim on it.
It has found that banks and AMP (a financial services company) were continuing to charge fees from people after they had died, and that spurious investment advice from financial planners had led to some people losing their homes and life savings while others lost large chunks of their superannuation savings through exorbitant exit fees.
Recently, AMP admitted lying to the Australian Securities and Investments Commission (ASIC) and the Commonwealth Bank admitted some of its financial advisors have been charging fees for services never provided.
AMP CEO Craig Meller became the first high-profile casualty, announcing he was resigning shortly after giving evidence to the commission. Hopefully, others will follow. But those responsible for serious financial crimes need to be charged and convicted.
Moves to tighten the regulation and toughen up penalties for criminal behaviour are only a small part of the answer. These, and many other scandals, show that the overall problem of the financial system cannot be fixed by greater regulation alone.
System working as intended
Susan Price, a national co-convenor of the Socialist Alliance, told 91̳ Weekly: “The abject failure of ASIC [Australian Securities and Investment Commission] to effectively supervise and control banking practices, is not the source of the problem. The system is working as it is intended to work — to maximise profits for the major banking and financial corporations at the expense of ordinary working people.
“This is the essence of capitalism’s financial oligopoly. The labour movement and the public need to challenge this corporate monster head on. The time for tinkering is over.
“We need a major national campaign to take back the wealth that has been stolen from us over decades. A nationalised banking system could be a massive funding base to revive the ailing public sector, including for spending on public health, education, transport, housing and sustainable energy.
“And the best way of avoiding any new public banking system management becoming corporatised and bureaucratic will mean ensuring that control is firmly in the hands of an elected board, representing employees and the community. That way, lending and savings policies on accounts and credit cards, home mortgages and investments would be directed toward the public interest, not private profit.”
Greg Jericho, writing in , pointed to the same problem. In his article titled, “What happened this week is not a shock, it is capitalism as intended”, he said the revelations coming out of the banking royal commission should not be a surprise because it “is what happens when so-called free markets operate without, or with no fear of, regulatory control”.
“There is no benevolent invisible hand leading companies to produce optimal outcomes for the economy — merely a hand that drives towards higher profits at whatever cost.
“Charging dead people for financial advice? This is not a shock, it is capitalism working as intended. It is businesses who lobby for lower regulations (it’s a competitive burden, don’t you know!) taking advantage of lower regulations.
“Capitalism is founded on corporations taking advantage of having more power and information than their workers and customers.
“It underpins the fraudulent reasoning for the government’s proposed company tax cut for big businesses. Do you really think these businesses, which have consistently ripped off their own customers, will be using such a tax to reward their workers and customers, or will they use it to reward themselves?”
The fact that Prime Minister Malcolm Turnbull and other ministers had to be dragged kicking and screaming to even admit they were wrong to resist the growing pressure for a royal commission — pushed by the Greens and by Labor — underlines the fact that the Coalition government is operating a “protection racket” for the four big banks.
Chifley’s nationalisation plan
The proposal to nationalise the banking industry goes back to the Ben Chifley Labor government (1945–49). In March 1945, while World War II was still raging, the then John Curtin Labor government introduced legislation to continue the wartime controls on the private banks and consolidate the Commonwealth Bank’s role as a central bank.
Chifley, who was then Treasurer, explained that the legislation was “based on the conviction that the government must accept responsibility for the economic condition of the nation ... The government has decided to assume the powers which are necessary over banking policy to assist it in maintaining national economic health and prosperity.”
After Curtin died, Chifley became Prime Minister. Labor was re-elected in 1946 and the following year Chifley’s Cabinet authorised preparation of legislation “for the nationalisation of banking other than state banks, with proper protection for shareholders, depositors, borrowers and staff of private banks”.
All hell broke loose, with the Liberal Party, then led by Robert Menzies, saying this opened up “a second battle for Australia”. Accusations flew that Chifley was moving towards a “Communist dictatorship”.
A legal challenge by the private banks to the nationalisation legislation in the High Court was successful in 1948, with the law ruled unconstitutional. The Chifley government was defeated in the 1949 election, primarily due to the escalating Cold War atmosphere, but the campaign against bank nationalisation played its part.
The defeat of Chifley’s bank nationalisation plan put the issue into the too-hard basket for more than half a century. We need to look at it again — especially in light of the public anger against the Big Four private banks.
Hawke-Keating sale of the CBA
One of the worst actions of the Bob Hawke-Paul Keating Labor government was the privatisation of the Commonwealth Bank (CBA). The sell off was carried out in three stages from 1991, and was completed by the John Howard Coalition government in 1997.
The sale of the CBA netted the federal government just $7.8 billion. This compares to a CBA profit for 2017 alone of almost $10 billion.
The sell off was an unmitigated disaster, not only because the public lost out so badly on the deal financially, but because it opened the way for the Big Four-dominated private banking oligopoly today.
If the CBA had remained public, its huge assets could be utilised to provide low-interest home loans for the community, and fund all the other important public infrastructure needs.
Moreover, a public CBA — under democratic management — could be used to avoid the crimes and malpractices that are so widespread today. It could be the springboard to extend the public banking sector.
In the meantime, one transitional measure could be the establishment of a new People’s Bank, as Greens leader Richard Di Natale recently proposed, although in a modified form. One model could be the KiwiBank in New Zealand, which operates publically through the New Zealand Post Office network.
A new People's Bank could be a stepping stone toward the re-establishment of a substantial public banking sector. While it would initially lack the resources of the CBA, this could be built up via a levy from the Big Four, for example, and other government-backed sources.
“Whatever the initial steps,” Price said, “the challenge today is to launch a major campaign to re-establish a substantial public banking system.
“The first step is to begin a widespread discussion about the need for a nationalised banking system and to propose a path for achieving it.”