Eureka! It's Murray's missing point

Spend more than a minute or two with a banker these days and the conversation will turn to the Financial System Inquiry headed by David Murray, with the question: “What do you think it will do? What's the point of it?” No one knows.

Joe Hockey committed the Coalition to a “Son of Wallis” or “Granddaughter of Campbell, whatever you will” in a speech to the AIG National Forum in October 2010. It was the ninth point of a “Nine Point Plan” about banking, which he felt obliged to produce because the then Treasurer Wayne Swan was getting some traction with his attacks on the banks.

Interest rates were going up and the banks, it was believed, were colluding. There was obviously a cosy oligopoly at work and Something Needed To Be Done. Hockey’s nine points were all about banking competition and gave him something to say on the subject that week, which is what Oppositions need, every week.

But bank competition is not really an issue anymore because rates have come down and everyone understands that margins have been squeezed as well. That is, it’s plain that lending rates have been reduced more than the cash rate and banks are beating each other up.

So no one much worries any more about bank competition. They compete, obviously. But that’s the trouble with committing to an inquiry two months after one election: when the next one comes around, and you win, you have to go ahead with it.

That’s not to suggest that the Murray Inquiry, as it will no doubt become known, is pointless. It’s just that the original point no longer matters and everyone’s now on what you might call a point hunt.

The Campbell Inquiry of 1981, set up by Malcolm Fraser, set up the wave of deregulation for which Bob Hawke and Paul Keating took credit.

The Wallis Inquiry, set up by Peter Costello, reported in 1997 also had a clear result: it constructed a new financial regulatory framework for Australia around the Australian Prudential Regulatory Authority and the Australian Securities and Investments Commission. And it was APRA’s tough approach to regulating the banks that helped ensure Australia’s banking system did not collapse with America’s and Europe’s in 2008, and both Peter Costello and Wayne Swan were able to claim the credit for that.

Joe Hockey’s inquiry, for which some future treasurer will no doubt take credit, has turned into a big broad monster of a thing. The terms of reference are wide enough for the panel to do anything at all, including wander about in a daze for a year before producing a theoretical treatise about how much banking has changed since 1997 and recommending nothing of substance – just tinkering.

In a speech last Friday Murray laid out how he sees it, as a prelude to a round of consultations with bankers.

Basically he said he’s been asked to look at how much banking has changed since 1997, what “drivers” will shape the financial system over the next decade, and what he should recommend to ensure the system remains strong. In short, he’s on a “point hunt”.

In my view there are two things the Murray Committee needs to focus on: superannuation and the internet.

As discussed here many times, retirement saving in Australia is a mess. No one knows whether they have enough money for a long retirement, no one knows how to make sure they do have enough, and there’s an industry that has grown disgustingly fat skimming excessive fees from the confusion.

Self-managed super is the fastest part of it because more and more people are disillusioned with this system, yet the Coalition Government is proposing to repeal part of the only attempt to deal with the problem – the Future of Financial Advice legislation – thereby pre-empting the Murray Inquiry.

Also, as a result of mandatory saving Australia has one of the largest savings pools in the world yet remains reliant on foreign capital.

Meanwhile banking is moving online, where national borders don’t matter. As a result PayPal and Google, among others, are becoming quasi-banks, and new forms of money, led by Bitcoin, are popping up. What are the implications of this for bank regulation?

So it turns out there is a point to Joe Hockey’s financial system inquiry – it just isn’t the number he first thought of.

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