For Australia's big banks, July election may open Pandora's box probe

Sun Jun 19, 2016 6:35pm EDT
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By Swati Pandey and Jonathan Barrett

SYDNEY (Reuters) - Australia's four leading banks face the biggest test to their dominance since the 2008 global financial crisis as politicians calling for a public inquiry into how they operate look set to emerge from national elections in July with decisive influence.

The calls for a special parliamentary investigation, known as a Royal Commission, follow a series of poor conduct charges leveled at big banks, from giving consumers bad financial advice to claims of rate-rigging by three of the top four lenders.

A Royal Commission with far-reaching powers could be a headache for the "Big Four" - Commonwealth Bank of Australia (CBA) (CBA.AX: Quote), Westpac Banking Corp (WBC.AX: Quote), Australia and New Zealand Banking Group (ANZ) (ANZ.AX: Quote) and National Australia Bank (NAB) (NAB.AX: Quote). The four are behind 80 percent of the country's lending and have scored strong profit growth for years.

"A Royal Commission is very negative because anything can be opened up, so I understand why banks are so keen to avoid it at all costs," said Omkar Joshi, who manages A$1 billion ($738 million) at Watermark Funds Management.

Under Royal Commissions, executives can be compelled to attend public hearings and answer questions under oath. Findings can trigger major reforms: a police regulator was established after a Royal Commission into the New South Wales Police in 1995 uncovered widespread corruption.

Polls predict a tight race in the July 2 federal election. While the ruling Liberal-National coalition does not support a public inquiry into banks, even if it emerges from the ballot as the leading political force it could be outvoted on the issue in parliament, with both the main opposition Labor Party and key independent lawmakers backing a comprehensive probe.

"I think we need to have a robust Royal Commission," Senator Nick Xenophon, whose newly created party, Nick Xenophon Team, could have the balance of power in the Senate, told Reuters.

"It should be about how do we better protect consumers, how do we strengthen those non-'Big Four' banks as well in relative terms?"   Continued...

The logo of the Commonwealth Bank of Australia (CBA) is displayed outside a branch in Sydney, Australia, March 21, 2016.  REUTERS/David Gray