The best banking scandal yet

The best banking scandal yet

The banksters are back in the news. This time, with a real cracker that has even me surprised.

The number of inquiries, investigations, commissions, reviews and taskforces is just too much to keep up with anymore.

They must be running out of names at this point. Wallis, Cooper, Murray, Sedgwick, Hayne and plenty more efforts not named after luminaries.

Reading the Royal Commission report’s short history of financial industry investigations made my head spin. Then there are the court cases and regulatory actions themselves. On and on it goes.

But I have never, ever — in all my time investigating bank malpractice — seen anything quite like this…

Banks investigate themselves

Last week, Westpac, ANZ and NAB were ordered to set aside $500 million while they ‘address major flaws in their culture and the way the banks are run’, according to The Australian Financial Review.

Last year, CBA faced a billion-dollar version of the same order.

A fine for culture? It sounds a little odd to me.

But wait, it’s not even a fine.

It’s money to be set aside while they solve the problem… Money which they get back when they’ve solved it… Where is the money set aside? It stays with the bank…

If you’re not surprised by this sort of thing anymore, I can tell you this gets much better. Please keep reading until the end…

Here’s the next juicy detail — what brought on the ‘fine’: ‘Westpac released a damning internal assessment of the inner workings of the bank that uncovered multiple failures.’

‘Damning’ sounds good. But wait, ‘internal assessment’?

Yes, having been shown to have a bad culture, the bank investigated its own culture…

But that’s only one bank, right? The AFR continues:

The Australian Prudential Regulation Authority’s order for the banks to hold more capital comes eight months after the three banks, along with 33 other financial institutions, submitted detailed self-assessments of their management governance and culture.

Yes, an industry just exposed for charging dead people for financial advice and forging borrowers’ signatures is now investigating itself. For poor culture.

If you don’t see the irony, don’t worry. Like I said, this gets much, much better.

Here’s what Westpac found during its attempt to investigate itself, according to its own report about itself:

The bank admitted to cultivating a culture of complexity, employing ad hoc solutions to problems and revealed an organisation mired in bureaucracy with a workforce that fails to speak up.

If you’ve followed what the Royal Commission uncovered, this sentence should make your blood boil. The banks should be admitting to rather more dramatic things than ‘a culture of complexity’.

Large-scale fraud is more like it — according to my research, anyway.

APRA tells itself off

But, having avoided addressing the problem, I do agree with one thing Westpac Chief Executive Brian Hartzer said: ‘The CGA self-assessment was a valuable exercise.’ Valuable for the bankers, that is. Because of what happens next.

Now that the banks with the bad culture have established what’s wrong with their culture, they’re going to fix it.

Who judges what should be done? The banks with the bad culture do, of course!

Who judges when the problem is solved? Why, the banks do. And then they just need to let the regulators know when it’s sorted.

If you ask me, this exercise means only one thing: A huge amount of money in bankers’ pockets.


Well, all this investigating costs money, right? And fixing cultural problems costs even more money.

Especially when you’ve got bankers with a bad culture doing the investigating. Of themselves. Not to mention the fixing. People need to get paid for this sort of thing.

You can think of the crackdown as a massive dollar bonus for bankers to do a little soul searching and report writing.

But don’t worry, Australia’s financial regulators are onto the problem. Which is where things get surreal. The ABC reports on the investigations they’ve been busy conducting:

An independent review is urging the overhaul of the Australian Prudential Regulation Authority (APRA), slamming it for a poor culture and variable leadership.

Huh? The regulator has a poor culture too? And it’s under review as well?

The bad culture at the regulator might explain why the regulators weren’t a suitable choice for investigating banks’ culture in the first place. Although, it takes one to know one…

But at least the regulator is not investigating itself. So the report has a little more credibility than the banks’ internal investigations of themselves.

After all, it’s not like they hired a bunch of bankers (the ones with bad culture) to do the independent review of the regulator, right?

Oh, wait. They did.

The APRA Capability Review’s report tells us two of the three panellists were bankers…

And not just at any bank, but at two that were singled out for bad culture. One was a group executive at Westpac and the other held senior positions at ANZ.


So, instead of regulators investigating banks, the regulators have been getting bankers to investigate the regulators. And bankers to investigate themselves.

And then discovering the very same problems at the regulators as at the banks.

Making a mockery of financial regulation

To be clear, the regulator — plagued with cultural issues identified by bankers — has required the banks to investigate themselves for cultural issues.

The banks, having found extensive cultural issues, then set aside money at their own bank as a punishment. Money they get to keep once they decide those issues are solved.

Meanwhile, the bankers with the cultural issues get paid to fix those problems. And then they report back to the regulators — the ones with the cultural issues of their own.

They inform those regulators that the cultural issues at the banks with the cultural issues have been fixed by the bankers with cultural issues. Who also identified what the cultural issues were in the first place. And what should be done about them, too. As well as when they’re considered fixed by the bankers with the cultural issues.

This is downright lunacy. It redefines the term ‘cultural appropriation’.

The people responsible for the problem will be the ones identifying the problem, deciding what to do about it, deciding when they’ve done it satisfactorily and getting paid for doing all this.

It’s a direct transfer of wealth from bank shareholders to bank staff. It rewards them directly — financially — for a bad culture.

But the cherry on top came two days earlier.

Remember, the punishment for banks’ bad culture is a higher capital requirement — money set aside. What did APRA do two days before announcing this ‘punishment’?

The AFR has the headline: ‘APRA decides on lower capital target for banks’.

All I can say is that someone needs to investigate all these cultural issues…

Until next time,

Nick Hubble Signature

Nick Hubble,
For The Daily Reckoning Australia