Even if banks reform, can the prevailing culture?

Is culture to blame for the banks' disregard for their customers

By George Browning

March 5 2019Stories of misdemeanours by the banking industry became such a widespread scandal that a Royal Commission was inevitable, despite the best efforts of many in power and influence to stop it, argues George Browning. What is now apparent, however, is that the misdemeanours, as serious, indeed as scandalous as they are, are not the problem: the culture that lies behind them, a culture not restricted to the banking industry, is the problem.

The misdemeanours that were revealed by the Banking Royal Commission – including charging fees for non-existent services, continuing to charge deceased persons, irresponsibly encouraging and making loans to gain commissions, and more – are all symptoms of a pervasive culture in the finance industry that money is not primarily a means of exchange enabling the flow of commerce and daily living, but an end in itself. The finance industry, with the banks as the mastheads, has developed a culture that legitimises the making of money out of making money. In other words, money used as the vehicle to exchange a commodity of usefulness for another commodity of usefulness, or service, is not the primary objective. The objective is the accumulation of wealth regardless of whether a commodity of value or service is exchanged or not.

Soon after I retired, I worked in the Diocese of Salisbury in the UK, over a period that included the Global Financial Crisis of 2008. I was told, at that time, that approximately 25 per cent of Great Britain’s economy revolved around “funny money” – that is, wealth acquired not through growth in the production of goods and services of value to consumer citizens either in Great Britain, or through export to overseas markets, but through manipulation of the market itself. Short selling is a well-practised enterprise beyond banks. It is no more than placing very large bets on the rise and fall of stocks in the market. It adds no value other than accumulating wealth to those who practise it. Similarly, investments on the currency market are bets that one currency will rise or fall in relation to another. Because these practices, and others like them, occur on a very large scale, small “mum and dad” investors find their meagre investments rising or falling out of any real relationship with the commodity itself. “Funny money”, to be of any worth, must become real money. Because it is made without adding value, it means loss somewhere else, almost certainly to ordinary citizens.

This is one of the reasons inequality is growing at a frightening rate. Those with money are making much more of it. Those with limited resources are finding themselves falling further and further behind. There has been much commentary in recent years about the reality that while economic growth has prevailed, wages have remained stagnant. This is evidence that a culture of making money out of making money has prevailed over a traditional capitalist culture where individuals are rewarded for production, the creation of value.

This brings us back to the Commission report. The consensus is that the banks have been let off the hook, evidenced by the considerable rise in bank shares the day after the report was released. Certainly, the banks are being forced to change some practices and, if transparency through regulatory bodies with teeth is genuine, then the excesses of recent years will be curtailed. However, will the overriding culture that dominates the financial industry at large be changed? Most commentators at this stage seem to remain unconvinced.

The problem as I perceive it is that capitalism in the last two or three decades has morphed into a system that does not reward genuine effort or work, but rewards those in a position to manipulate the financial and regulatory system for personal and corporate gain. It should be self-evident that the first loyalty of banks is to their customers. This is not now the case; their first loyalty has been to shareholders. This begs the question, should banks have shareholders, or should their customers automatically be their shareholders? Do banks have a serious and unresolvable conflict of interest between customers who should receive maximum service at minimum cost and shareholders who expect maximum return from minimum expense (customer service)? The exorbitant and obscene salaries that senior banking staff receive, in comparison with people with high levels of professional skill and responsibility in other areas of civil society, distort the role of bankers, while commissions paid by lenders to mortgage brokers encourage malpractice.

The Prime Minister’s favourite and over-used aphorism that in Australian culture “those who have a go will receive a fair go” is not borne out in practice. Those who produce are not rewarded in the same way that those in the financial industry are rewarded. A case could be made for arguing that teachers should be amongst the highest paid in the community, given that their skill and dedication plays a significant role in the productive capacity of the next generation. A very able teacher may in fact be remunerated at less than one twentieth the remuneration of a banker.

The loss of trust currently being suffered by all institutions, including the Church, is hurting the cohesiveness and well-being of civil society. Institutions are by their very nature servants of society. When institutions become self-serving they lose the rationale for their existence, and trust is lost. Society needs institutions to provide, on a large scale, what cannot be provided by individuals. The activity of an institution should be uncompromisingly transparent to those they serve – the public. At the end of the day trust, rather than money, lubricates the moving parts of civil society. Loss of trust is very serious. The option is not the death of institutions but their reform.

Commissioner Hayne has asked whether banks are open to reform. He concluded that, on evidence presented to the Commission, the answer, at least for one of them, is no. But reform they must.

Politics must be reformed. The party system and the factions within parties are self-serving and self-preserving. Cross-party consensus over good policy-making should return to the floor of Australian parliaments and financial gifts to political parties should be banned. Elections must be resourced by the piper who should call the tune: the taxpayer, not the lobbyist. It is extraordinary that in the wake of the Royal Commission politicians of all colours have rushed to condemn banking practices and call for heads to roll, while new stories of political ill-practice and dubious morality continue to roll out, seemingly with no change or end in sight. According to the latest poll, trust in politicians is lower than that of bankers – a considerable achievement given that trust in bankers is below 20 per cent.

Churches and their considerable assets must become servants of the population at large – believers or not. Rather than arguing for greater “freedom of religion” and protection under law, as many are doing, churches must abandon any aspiration other than to serve the common good of both corporate and individual Australia, for its physical and spiritual harmony and well-being.

While not its mandate, the Hayne Royal Commission has confronted capitalist practice in urgent need of reform. Unless capitalism is open to reform and becomes again the best system to serve the common good of global citizenry, it will become as toxic to the wellbeing of 21st century humanity as communism became to 20th century humanity. The reform will not come from within the banks. It needs to come from the grassroots and be enacted by legislators who are prepared to put global common good above self-interest.

Dr George Browning is a former Bishop of Canberra and Goulburn.