Australia’s banks are scrambling to repair their image after years of scandals.
Their latest strategy is a revamp of the industry code of practice. The code is put together by the Australian Bankers Association (ABA). The ABA is made up of the big four banks, as well as many of the smaller and foreign banks operating in Australia. They announced the changes this week.
The updated code of practice brings a number of changes. Most are simple consumer protections. Making it easier to cancel credit cards online, for example, and preventing banks from soliciting customers for credit limit increases.
These changes largely fail to directly address the series of scandals, controversies and cover-ups our banks have been embroiled in since 2009. Those controversies, most notably CBA’s money laundering scandal this year, clearly violated existing laws and industry standards. With their track record for breaking existing rules, it’s tough to see how yet more rules will change anything. Instead, these changes seem to be more of a ‘feel good’ gesture towards customers.
Will it be enough to dispel the cloud of controversy hanging over the bankers’ heads?
It may win back some lost goodwill. But with a royal commission into the banking industry now in the works, it’s unlikely that investors in the banks have seen the worst of this yet.
Malcolm Turnbull reluctantly caved to pressure for a royal commission into banking this year. Though not, it has to be said, until the banks themselves told him to.
Turnbull argued for more than 18 months that an inquiry was unnecessary. Pressure from the public, the opposition and his own government couldn’t move him. But when the big four banks decided that the controversy was doing more damage than a royal commission could, Turnbull flipped on the spot.
The big four’s share prices fell on the news. But it didn’t last long.
Perhaps it was the fact that an inquiry from the current government is likely to tread lighter than that of a potential future Labor government. Perhaps it was simply a case of ‘buy the rumour, sell the fact’. Either way, all four quickly regained their losses. And have been reasonably steady since.
Good news for investors in the banks. And thanks to Australia’s superannuation system, most Aussies are. But possibly not such good news for Australians as consumers. If the royal commission is as toothless as investors seem to think it will be, don’t expect to see an end to the banks’ unethical behaviour.
Long term, it may not be government inquiries and red tape the turn this culture around. As long as the big four can comfortably maintain their positions at the heart of Australian finance, it’s unlikely to change. There’s little competition for the big four, outside one another.
But that comfortable position may not be as secure as they think.
But, as we’ve often argued here in Money Morning, the blockchain technology that cryptos are built on could be even more revolutionary than cryptos themselves.
2018 could be the year of the blockchain. A technology that could allow users to securely transact without the need for middlemen.
This has the potential to disrupt dozens of industries. Blockchains projects are already running or being developed to securely share private medical information, to govern peer-to-peer energy markets, and to buy and sell excess computer processing power. To name just a few. But perhaps the most obvious application is the world of finance. Peer-to-peer lending, money transfers, international currency exchange.
All without the need for a major institution skimming fees at every step. And with the advantage that an algorithm can be trusted in a way that an organisation made up of fallible humans never could.
If the forecasts for blockchain’s potential are even remotely accurate, Australia’s banks should be more concerned about technology than they are about red tape.
Ryan Dinse, editor of Money Morning Monday to Friday, has led the way in researching these possibilities. His premium investment advisory, Exponential Stock Investor, is already seeing impressive returns in blockchain-related stocks. To find out more click here.
This week in Money Morning
US markets have been boosted recently by the prospect of major corporate tax cuts. Those cuts are now close to becoming a reality. Does that mean that further rises are on the cards? Surprisingly, it may not. This could be a textbook example of the classic market phrase ‘buy the rumour, sell the fact’. Check out Monday’s Money Morning here to read why.
On Tuesday, Ryan took a step back from the day to day price moves in cryptocurrencies, to look at the bigger picture. Crypto and blockchain technology are driving some incredible changes in society. But did you imagine that the rise of cryptocurrencies could cause a significant fall in the murder rate? Strange, but true. Click here to read why in Tuesday’s Money Morning.
Then Ryan took aim at a popular myth about Christmas on Wednesday. Pop culture aficionados may be surprised by the truth of this. Or perhaps not. It turns out that even incorrect stories can still have a grain of truth to them. And sometimes the legend creates the reality. Ryan argues that’s not only the case with Santa Claus. It could also have bearing for bitcoin investors… Read the details here.
On Thursday Ryan looked at what we can learn from some of the best-known investors in the world — and what we can learn from a few more obscure figures, who perhaps shouldn’t be. Ultimately, it’s not a person’s fame or lack of it that matters. It’s their results. And how well their methods can be incorporated into your own. There’s no one right answer. But the lives of the greats can provide some inspiration. You can find the article here.
Then Ryan finished off the week (and the year!) with a look at the massive tax cuts in the US. This was the first real win for the Trump administration. And the President claims it will be a major economic boon for the US. Ryan took a look at the realities of that in Friday’s article, and what it may mean for the US and global markets. You can read his assessment here.
On that note, I’ll be signing off for the year. The Port Phillip Publishing office is closed next week for the holidays, and will be returning on 2 January. We have a skeleton crew on call in case there’s need to update any of the recommendations for our investment services. Money Morning will still be hitting your inbox, but it will be a little different from now until the New Year; we hope you enjoy it.
And finally, I’d like to wish you and your loved ones a Merry Christmas and a Happy New Year!
Editor, Money Weekend