The Minister for Financial Services and Regulation
21 October 1998 - 26 November 2001
Interview with Sally Loane
ABC 702 2BL
6 March 2006
SUBJECT: Review of the Code of Banking Practice
SALLY LOANE: Well, banks must do better. This revolutionary stuff is contained in a report into banking behaviour by an independent consultant appointed by the Australian Bankers' Association. Now, the consultant has found that banks must lift their game substantially. They must give three months' notice of when they plan to close rural and regional branches, they must treat customers fairly. And here's something really radical - banks must only provide credit and loans to those people who can afford to pay them.
Now, these changes are part of a review of the Code of Banking Practice.
Joining me on the line to discuss all these issues is the federal Financial Services Minister, Joe Hockey. Minister, good morning.
JOE HOCKEY: Good morning, Sally.
LOANE: Now, I'd imagine that you would agree with all of these changes?
HOCKEY: Well, they represent common sense. I mean, what Richard Viney has delivered in this report is effectively a bill of rights for bank customers. And it seems common sense to me that banks shouldn't lend more money to people than they can afford to repay. Seems like common sense that they should consult with the local community before they close a bank branch.
So I'm hoping that the banks will respond quickly to the recommendations in this report.
LOANE: Now, the heads of all the banks are due to meet this week, I understand. They'll be looking at these changes. Would you expect them to actually take them up or just give them a cursory look? I mean, how would you expect them to deal with them?
HOCKEY: Well, this is a little more serious than some previous reports. It's easy to go on a bank bash. We all do it from time to time. I think we should be grateful that banks are in fact profitable and they're not like they were in the late '80s, early '90s.
But because the report was actually commissioned by the banks themselves, it is a report that delivers without fear or favour and it basically summarises all the general complaints that I hear and I'm sure you hear about banking in Australia at the moment. It's about putting consumers first, about remembering that customers that walk in the door or that use the ATM or electronic banking are the ones that make the profits and it's not simply other areas of banking that helps to make profits for the banks.
LOANE: Yes. It seems pretty amazing, doesn't it, after all these decades and decades that we have these sorts of things written down, as you say, common sense, but practices which just haven't been followed by the banks.
HOCKEY: Well, a good example is in the report it says, as you pointed out earlier, that the banks should undertake community consultation for three months before they close a branch. Now, we've seen examples in particularly regional Australia where the last bank branch in town has closed and the decision is made in Martin Place without any due regard for the interests of the local community. Then the local community get together with someone like Bendigo Bank, former community bank, which is viable, which the local community can access for cash purposes, and it works and it works well.
Now, this report says, "Okay, the banks have to start consulting with the local community before it closes a bank branch to give the local community a chance to keep a bank branch in that town."
LOANE: This is going to give the banks some headaches, of course, isn't it? They'll be resisting this kind of thing.
HOCKEY: Well, I think they would be concerned. You know, I've detected a discernible change in the attitude of the banks, particularly at CEO level, at chief executive levels, because I think they're quite tired finally of being belted up by the community and I think
LOANE: Well, with good reason too, Minister.
HOCKEY: Well, that's right. I mean, they've been their own worst enemy. Some of the banks actually do a good job. I mean, one of the major banks has something like a million customers that pay no fees or charges on their bank accounts, yet that message hasn't got out to the community and in fact
LOANE: Is that one of the big four banks?
HOCKEY: It is one of the big four banks and they actually haven't told people or haven't been able to get the message out that in fact they've got a huge number of customers that pay no fees and charges because they're low income
LOANE: The problem is, wouldn't you agree, that they've been looking after perhaps the shareholder end of their business rather than the customer end of their business for too long?
HOCKEY: Well, I suppose that's right. I mean, it's an extremely competitive industry, banking, generally. And if you look at some of the trends overseas you can see that banks are closing branches everywhere, the competition is becoming more intense. And because banking can be in some cases delivered over the phone or over the Internet, then it means that bank branches close.
But I went to Fitzroy Crossing, which is out in the far north-west of Western Australia, and one of the last bank branches closed in that town and all the locals were given cards, like EFTPOS cards, that they can use to make automatic debits. And there was nowhere within a hundred kilometres that they could access an automatic teller machine. And it just seemed to me that the lack of concern from the banks in that instance was a great example of technology not meeting local community needs.
So I've already spoken to the CEOs on a number of occasions, the head of the banks, about these sort of examples and said, "Look, you know, you've got to start to respond to the community which is screaming out for more compassionate, caring banking services when they're most needed."
LOANE: Minister, the banks will decide, I suppose, whether or not to implement these changes to their code of practice. Now, Richard Viney was particularly critical of the administration of the previous code which relies on banks to assess their own compliance, Caesar judging Caesar, if you like. Is that still okay for the banks to judge themselves on this and to have this code as a voluntary code?
HOCKEY: Well, Sally, voluntary codes work, as you point out, when people are prepared to commit to them. Now, I'm hoping that the change in rhetoric from some of the banks to me is indicative of their change in attitude towards the community.
You've got to give them the opportunity to get it right and I'll be using all the persuasive coercion I can to try and get them to move by their own volition to get it right. The heavy hand of regulation is a last resort.
LOANE: Something that you wouldn't think of?
HOCKEY: Well, I've thought about it, the government's thought about it, but governments are notoriously bad at getting involved in banking. I mean, we all remember when governments owned state banks and in the old days when banking was heavily regulated people couldn't get credit, people had trouble accessing their bank accounts outside of 10.00 o'clock in the morning to 3.00PM in the afternoon and there were banks that lost a lot of money, billions of dollars, like the State Bank of Victoria and State Bank of South Australia.
We don't want to go back to those days. We actually understand that it is a competitive industry. We are encouraging more people to enter banking, particularly overseas players, to enter the Australian market. And at the same time, we're saying to the local banks, "Listen, you've got to take a hand in your own destiny and if you don't do the right thing by the community, then the community will punish you and "
LOANE: But often the community's hands are tied. I mean, shouldn't the government even look at perhaps some sort of sanctions if banks break their code of banking practice, because at the moment they can break it with impunity.
HOCKEY: Well, that's right. And that's why the banks themselves have commissioned this review. I think everyone would accept that the review is an honest review.
LOANE: As long as it's not going to be window dressing and they're just going to say, "Yes, that's terrific, put it in a code and put it up in the window," and not do anything about it.
HOCKEY: Well, that's right. And as far as the government is concerned, if the banks become serial offenders in relation to their own code, then we've got to look to other solutions.
LOANE: In an election year, Joe Hockey, you'd be particularly mindful of the sorts of anger in the community at the moment, not only against the government and petrol prices and a whole lot of things but, I mean, banks come into this anger too, don't they? So you'd be hoping, I guess as you say, using your persuasive powers to get the banks to take up this code of practice?
HOCKEY: Yes, Sally. Look, I think people generally are angry about a number of things. I understand where they're coming from. I mean, the world's changing so fast these days that sometimes you want to yell out, "Can we stop this world and get off for a moment and take a breather."
And banking is an area where there's been tremendous changes over the years. Ten years ago it was quite rare to use an automatic teller machine. Today you can use your card at a supermarket, at a bottle shop, you can get money out 24 hours a day, seven days a week from your bank account anywhere in the world, virtually, and in a local currency. That's an amazing transition and it will continue to change.
The focus of that change has to be community interest though, and I think the banks have got to save themselves from some of the competitive pressures they're living and focus on community needs.
Now, the government can't come in with a heavy hand all the time. I don't think most Australians want the government to simply legislate all the time. There are so many laws that govern our lives though, it becomes intolerable. And at the end of the day, I think we've got to take control of our own destiny as individuals and as corporations. And I'm going to be urging the banks to do the right thing and if they don't, then we've got to see where that takes us.
LOANE: All right, Joe Hockey, thank you.
HOCKEY: Thanks a lot, Sally.
LOANE: The Minister for Financial Services there, Joe Hockey. And if you have a look at that code of practice, Code of Banking Practice, these are changes that are recommended, not necessarily taken up yet. We'll have to wait and see just what the CEOs do. They are meeting this week, apparently, according to the Australian Bankers' Association. And really, this is back to making banks, making sure that they have some social responsibilities, which was an anathema about a year ago, wasn't it? You couldn't get a CEO of a bank to say that they had any social responsibilities. They may be dragged kicking and screaming into this though.