Day 507: 'Not a panacea'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 507.
Today in summary: Pauline Hanson’s bill to end vertical integration of banks tanks; APRA has written a letter breaking down new superannuation legislation; in its court battle with ASIC Westpac has maintained that it does not, and never did, lend irresponsibly; and banks are still expecting interest rate cuts later this year.
-- Alex
@AlexESampson
Current banker panic level: 👎🏻🧐😇☹️
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Pauline Hanson’s bill to end vertical integration of banks has not received endorsement from the Economics Legislation Committee. The committee, which released its report from its inquiry into the Banking System Reform (Separation of Banks) Bill 2019 today, concluded it was “confident that current legislative protections are sufficient” to protect bank deposits. The committee does not believe “full separation of the banks is necessary as has been advocated in the bill and by its supporters”. The Australian Shareholders' Association, the Australian Banking Association and Finance Sector Union of Australia also opposed the bill.
The bill sought to go where Hayne didn’t — end vertical integration and protect deposits and depositors from banks straying from their core business. The aim was to re-establish public confidence in the banking system and reduce risks to the Australian financial system.
The committee pointed to concerns raised by public policy think tank the Australian Institute for Progress during the consultation process, which expressed support for some aspects of the bill’s intent, but said the way it was written was “confused” and would not achieve the results it intended.
The report said:
“Even if the committee were convinced that banking separation was necessary, it would not be possible to support the bill as it currently stands.”
APRA has written a letter breaking down its expectations of all registrable superannuation entity (RSE) licensees in their implementation of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019. The reforms put a 3% cap on member account balances below A$6,000, ban exit fees, limit insurance on inactive accounts and require the transfer of inactive low-balance accounts to the Australian Taxation Office. The prudential regulator says it expects implementation of the changes to be in the spirit of what Hayne and Parliament intended and “and reflect the obligation to act in members’ best interests”.
Despite the battering of its reputation and profits following the royal commission, Westpac has not been chastened. In court over the past few days the bank defended its irresponsible lending polices, claiming borrowers could make lifestyle changes to afford loan repayments, rather than owning up to its responsibility to check whether a customer can afford the loan. The Australian is reporting that lawyers for Westpac said the bank had “done its utmost to meet its legal requirements”.
Corporate regulator ASIC is trying to prove that’s a load of codswallop and the bank was negligent in its loan offerings, allegedly breaking lending laws more than 260,000 times in three years. Next week’s outcome of the case could determine the future of the country’s responsible lending requirements, one of the most meaningful changes to come from the royal commission so far (or it could confirm that ASIC is a weak regulator that doesn’t know how to litigate).
Even though the RBA yesterday maintained a hold on the interest rate at 1.5%, banks are still expecting cuts later this year. ANZ head of Australian economics, David Plank, today said futures markets had “fully priced in” a 0.25% rate cut in August, and there was a “pretty high” chance of another cut by the end of the year. Westpac is also predicting interest rate cuts this year, while CBA is forecasting no change.
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Today’s burn prize: Citizens Electoral Council of Australia
“Separating banks is not a panacea, but it will address many of the problems in the system.”
The council ran a mail campaign to support Pauline Hanson’s Bill to separate the banks and attracted hundreds of submissions in support of the legislative changes it put forward. The group’s support was detailed in a report, released today, by the Economics Legislation Committee’s from its inquiry into the Banking System Reform (Separation of Banks) Bill 2019.
The Commentariat
The RBA’s decision to hold interest rates puts pressure on the banking sector to correct for lending pressures, Richard Gluyas writes in The Australian. The RBA yesterday pointed out that mortgage rates remain unchanged despite lower bank funding costs.
“The banks, for their part, are reluctant to cut rates unilaterally because of the intense pressure on their profit margins, which was highlighted in the recent half-year profit reporting season.”
AFR columnist Karen Maley believes the decision not to change the interest rate was “quintessential Phil Lowe”, saying the RBA governor ignored the “growing cacophony in the market place”.
“Instead, he carefully weighed up two key and somewhat countervailing factors: weak inflation and the strength of the labour market.”
Industry super funds now “reign supreme” and the ALP policy to scrap franking credit rebates to retirees could leave large funds in a bad way, writes wealth editor James Kirby in The Australian.
“If the funds reduce retiree income there will be uproar. But funds under superannuation law must treat all members “equitably”. It’s a double bind for big funds who were probably hoping to sort it out behind the scenes.”
Jessica Irvine explains in the SMH why the RBA defied economic panic merchants on interest rates yesterday.
“Australia's economic heartbeat may have slowed in recent times, but our jobs market remains 'strong', as Lowe put it in his statement accompanying Tuesday's decision to keep interest rates on hold. So long as people have jobs — and an accompanying faith that, should they lose that job, they can get another one with relative ease — they will eventually begin to demand higher wages.”
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