Banks have lost moral authority: Archbishop

There has been a fundamental shift in the culture of banks and the way they relate to society, says Archbishop

By Emma Halgren

December 6 2016Banks have lost their moral authority, and the social contract that has long been in place between banks and the public has broken down, says Archbishop Philip Freier.

Dr Freier was speaking with Fairfax business writer Adele Ferguson on ethics and the big banks in the final Archbishop’s Conversation for 2016, held at Deakin Edge, Federation Square on 30 November. The discussion was moderated by ABC Radio’s John Cleary.

Mr Cleary said that just as the Brexit vote in the UK and the victory of Donald Trump in the US presidential election had reflected a growing gap between rich and poor in western countries, “here in Australia, too, the great economic and social changes of the last 30 years are not necessarily benefiting all equally”.

He said that it wasn’t just that economics had changed, but “the very rules of the game seem to have shifted. Attitudes to social responsibility, or in religious terms the question of ‘who is my neighbour?’, do not seem to have the answers that once they had.”

Dr Freier agreed that there was widespread dissatisfaction with the way society was failing to serve those who “seem to be almost structurally locked out of opportunities”.

He said: “In many parts of the western world disadvantage is now an intergenerational reality, and all the aspirations that we once commonly shared, that we might, irrespective of how we were born into society, have an opportunity through the education system to achieve the things that might have been our potential, for an increasing number of people that doesn’t seem to be how it works anymore.”

He said that there had been a fundamental shift in the culture of banks and the way they related to the society in which they operated.

“Most of us in our lifetime can probably remember that a visit to a bank manager to get a loan was a bit like a moral inspection,” he said. “You would be examined as to your habits of saving, did you have appropriate thrift, what were the patterns that would make you a reliable person to repay a loan.

“Most people would have probably approached the bank manager... with some sense that these were people who knew about right and wrong; they would be trying to give them guidance that would be in their own interests.

“… But I think many people’s more recent experience is that that’s swung around quite a bit, and they’re quite likely to be recklessly offered credit, flooded in the mail with… totally unrealistic expectations of the kind of credit you can be given with no inspection of your capacity to repay.”

He said recent scandals had exposed the fact that banks were highly vulnerable to manipulation “and it does seem to be a culture of tolerating that”. He said there also seemed to simply be “a willingness of some people to act without decency”, and this included making credit available to people, including young people, who simply could not afford to repay it.

“Our societal narratives, at the heart of it, are saying that we can have everything and we can have it now, and clearly that’s not true, and we are as a society telling ourselves falsehoods,” he said.

Asked by Mr Cleary where we might look to find signs of hope, Dr Freier said he could picture over time that there would be a strengthening of credit unions and smaller-scale financial operations, as well as digital disruption that would make peer-to-peer lending increasingly possible.

“I think we are on the brink of some technology-inspired change,” he said.

Ms Ferguson, an award-winning senior business writer and columnist for Fairfax newspapers whose investigative work has exposed scandals at 7-Eleven and the Commonwealth Bank, among others, gave a number of examples of how public anger at the behaviour of the big banks was having an impact. She referred to a recent banking survey by Ernst & Young which showed that four out of five Australians did not trust their bank to give unbiased advice and put their interests first.

“When you’re getting surveys like that, and you’re getting scandals all over the world… and when you’re getting two thirds of the population here polling for a royal commission, the politicians have to start listening,” she said.

The unprecedented defeat of the Commonwealth Bank's remuneration report at its AGM in early November was a “watershed moment”, she said.

“That was more about making a statement to the bank – ‘we’re not happy with the way you’ve handled these scandals, it’s not right’.”

She said that the banks would “do anything not to have a royal commission” and had promised or already put in place a number of reforms to address the concerns of the public. But, she said, “At the end of the day, if it’s just about getting the spotlight off them, things won’t change. What they have to do is genuinely want to change, and that I’m not sure of.”

She said she had seen this kind of bid to deflect media attention in retail giant 7-Eleven’s response to public outrage after it was exposed for widespread underpayment of workers. The company set up an independent panel to assess compensation claims for exploited workers and appointed former ACCC chair Professor Allan Fels to oversee it.

“As soon as the media spotlight goes off them, they sack Allan Fels and they start to get rid of franchisees that aren’t profitable… so you then say to yourself, how genuine were all those announcements? It was just to get rid of the public glare. And I’m hoping that the banks aren’t doing the same thing.”

She was critical of the Australian Securities and Investments Commission’s handling of high-profile banking scandals, and said that a senate inquiry into ASIC’s performance in the aftermath of the Commonwealth Bank financial planning scandal had concluded that it was a “timid regulator that was too close to the big end of town”. For example, when ASIC finally did act on whistleblower claims about the Commonwealth Bank, “it gave the CBA two weeks’ notice that it was coming in to raid them.” In the case of the NAB scandal, ASIC “was sending draft press releases to NAB before announcements were being made”.

She said: “The heart of the issue with ASIC is it does have quite a lot of power already – it chooses not to use it. You can throw resources at a regulator, and give it more and more powers, but if it actually isn’t using them, nothing’s going to change.”

She urged shareholders to take action in protest at the behaviour of banks.

“Shareholders do have clout,” she said. “They can speak up, because if they threaten to sell the shares, when you’re a big institution, that can have an impact, and boards listen.”

Watch the conversation here: