Banking Royal Commission and the Credit Crunch
The steady stream of systemic misbehaviour by financial institutions, revealed this year by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been nothing short of shocking. Among the numerous examples, the practice of collecting life insurance premiums from the dead springs to mind.
The Commission's recently released Interim Report did not make any recommendations for legislative or regulatory change, but recommendations are expected in the Commission's Final Report due by February 2019. Hopefully, the Royal Commission's "sunlight" will lead to meaningful and effective reform and cultural change, and some "disinfection" of the financial sector which, in the long run, could benefit the economy as a whole.
However, since the release of the Interim Report, concerns have been raised by some – including, according to reports, the Australian Treasury and the Reserve Bank of Australia – that the Commission’s recommendations, or pre-emptive actions taken by regulators and/or financial institutions themselves, could result in a "credit crunch" that could hit Australian businesses and households. According to this report in the Australian Financial Review yesterday: "Treasurer Josh Frydenberg has signalled he must balance cracking down on nefarious misconduct in the industry and ensure credit keeps flowing to borrowers to grow the economy." Will (or should) these macroeconomic concerns soften policy makers' responses to the Royal Commission?
To shine some extra light on this matter, our October poll asks the Economic Society of Australia's National Economic Panel (NEP) for their opinions on the following two propositions:
Proposition 1: "There is a significant risk that, either as a result of the findings and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry or as a result of the financial institutions' response to those findings, credit will become less readily available to Australian households or businesses."
Proposition 2: "Assuming credit becomes less readily available to Australian households or businesses, this will in turn have adverse consequences for the performance of the Australian economy."
- Patrick Hatch & Eryk Bagshaw (The Age, 1/10/18) 'House prices have biggest drop since GFC amid warnings of credit crunch'
- John Kehoe (AFR, 1/1018) 'RBA, Treasury warn regulatory response to Hayne commission risks credit crunch'
- Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry - Interim Report
Read the Poll results here
Collaborator credits: we would like to thank Saul Eslake and Rod Maddock for their assistance in framing this poll question and expert overviews of the results.
That's NOT all folks...
When you look at the poll results, panellist comments and overviews you will see that there were differing opinions on the importance of the macroeconomic implications of current and future responses to the Royal Commission relative to how policymakers might deal with the misbehaviour of banks and other financial institutions. The Royal Commission has raised many economic, policy and regulatory questions and more will surely emerge between now and the release of the Final Report next February. We intend to follow up with another NEP poll on the Royal Commission focusing on other (micro or regulatory) propositions, findings or recommendations. We welcome your suggestions on this and other questions for the NEP. Submit your question ideas here.