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The Cut: Banking Royal Commission, US Government Shutdown

ROYAL COMMISSION FINDINGS

After more than a year of inquiries, Commission Kenneth Hayne delivered his findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on the first of February. With over 10,000 submissions, 68 days of public hearings, 134 witness testimonies and 24 referrals for criminal conduct the volume and potential impact of the Commission was immense, with 76 final recommendations detailed.


A series of scandals involving banks failing to comply with reporting responsibilities, facilitating money laundering and growing public outrage at their irresponsible and predatory business practices led the Turnbull government to establish the commission. Specifically, many complaints related to lenders providing unsuitable or unnecessary products, often to vulnerable people. The hope was to regain some transparency and trust within the sector by revealing its misconduct.

What was the outcome?

Regulations are already complex, so Commissioner Hayne had to be wary of adding confusion and further loopholes to be exploited by institutions. Current remuneration models, including commission-based incentives are being shifted away from, with the suggestion to add caps on the commission on sale of add-on financial products. The current ‘twin-peaks’ model sees ASIC and APRA oversee the financial and superannuation sectors, but a new, independently-chaired body will oversee these regulators in the hope of enhancing regulatory transparency and efficiency.

Hayne criticised the “gun-shy” regulators who favoured out-of-court settlements and issuing infringement notices with little recourse, rather than pursuing offending companies in civil or criminal court.A compensation scheme for those who have been failed by financiers and subsequently become insolvent is set to be established by the Government as a final safety net.

Will it actually change anything?
Both the government and opposition have stated they will support and implement all 76 recommendations set forward by Commissioner Hayne. His overarching sentiment in his recommendations was that the attitudes and culture towards current regulations are the issue, with the best interests of the customer not prioritised.


AMP’s CEO was the first executive to resign following his company’s ‘fees for no service’ scandal, as well as NAB’s CEO and Chairman in recent days. Largely the key decision-makers at the vast majority of institutions have remained unchanged, calling into question their ability to learn and change culture in their companies

GOVERNMENT SHUTS DOWN

From the RBA’s standpoint, the slowdown is attributable to low wage growth (at 1.7%, which is below the inflation rate) combined with decreasing wealth due to falling housing prices – houses are an asset so when value drops, spending decreases as people feel their ability to spend tighten. Treasurer Josh Frydenberg maintained that the ‘economy is in fundamentally good shape’ with only 5% unemployment (the lowest level in 7 years). He says the figures merely represent ‘some moderation on the back of strong results’, and has pointed to the extended periods of drought, lower mining investment and a decline in residential construction, which contributes 15% of our GDP.


Into the future, this is a burden for the government to carry to the May election and clearer governmental direction has been advised by both the Business Council of Australia and the Chamber of Commerce in order to aid investment activity. Sluggish growth also influences the monetary policy conducted by the RBA, and some economists have slashed predictions for official interest rates to drop to a record low of 1% by September. Exchange markets did not take well to the forecast, with the AUD dropping to a two-month low of $US0.703, though these symptoms of slowdown are being experienced internationally.

After failing to appropriate budgetary funds by the December deadline, the US government was plunged into a shut down where all non-essential federal programs were closed.

Why would they shut down?

President Donald Trump wouldn’t allow the US budget to pass until he was allocated US$5bn (AU$7.1bn) to build his Mexico border wall. Congress refused, leading to the longest shutdown in US history – 35 days of closure. Around 800,000 workers experienced disruption, with 420,000 critical workers maintained without pay and another 380,000 were sent home during the costly Christmas period. Although back-pay has been allocated, many workers couldn’t get loans in this period, or even pay their food and rent bills. Lower spending had an estimated $11bn reduction in GDP during the closure.

To fix the situation there was a limbo period of negotiations – Democrats initially refused to fund the wall, instead offering to fund other immigration measures they think will work better, such as scanning vehicles for drugs, more immigration judges and targeting entry points. They also wanted to cap the number of deportations so that mostly criminals are deported.

What next?

Finally, the shutdown ended on January 25 to allow for further discussions. The next step for Trump was threatening the use of his Constitutional power to declare a national emergency, which he has now done. This means funds meant for the military will be used to build the wall (which will now be more of a fence), however the legality of this remains in question.

If there were any topics in this article which you’d like to learn more about like monetary policy, market fluctuations or just GDP, get in contact through our UQBA social media channels.