Actually, these revelations should come as no surprise, given bank culture and the incentive/remuneration systems the banks have put in place to deliver their strategic objectives. 

The principal motivation of our banks is to maximize profit and, in time, the return to shareholders and shareholder value, and they are clearly prepared to do this at the expense of their customers. 

Shareholder value/returns are important to them because profit and contributions thereto are the basis of the remuneration of chief executives, key sales people, and so on.

So, culture begets remuneration, begets good and bad behavior.

Recognising that a “fish rots from the head”, it is the boards of our banks that set the culture, agree on the strategy, appoint the CEO and probably senior management, and agree on the remuneration packages.

Ultimately, therefore, it is the board that must carry full responsibility for the bad behavior.

Although the Royal Commission has started to document such bad behavior, we haven’t yet seen any bank boards willing to step up and accept full responsibility for the poor performances.

Another aspect of our banking system that has been fundamental to this bad behavior is that the banks have been allowed to develop as financial conglomerates or powerhouses, to operate not only as traditional banks, but also as investment banks, financial planners, fund owners and managers, insurers, and so on.

This ignores the fundamentally different risks and cultures in these diverse financial activities, also raising the possibility of serious conflicts of interest. One feature of these structures has also been the incentives to staff to cross-sell, again more in the quest for profit, rather than as a service to customers.

One of the most disturbing aspects of the commission’s evidence so far has been misrepresentation to the authorities, such as ASIC, including the falsification of documents.

Institutions such as ASIC, APRA and AUSTRAC had been making some headway in enforcing the existing regulations, initiating and winning court cases, imposing penalties and fines, forcing repayments to customers, and so on in relation failings such as rate fixing, financial planning, money laundering, and the like.

Some of the breaches have been very difficult to understand. For example, the CBA breaches (at least 53,000 of them) of the AUSTRAC money laundering rules simply required the bank to report all transactions over $10,000, actually nothing more. AUSTRAC’s role was then to investigate them.

Unfortunately, you can’t legislate or regulate to ensure honesty, or good judgement. It all comes back to bank culture and related remuneration structures, and the priority given to profit over customers.

One of the most unsavoury aspects of our banks is the way they gloat about record profits quarter by quarter, often coincidentally with announcements of further staff cuts, or offshore processing. They are also running TV ads boasting at how much of those profits they distribute to shareholders, that is after they have paid their senior executives what to many are obscene salary packages and bonuses.  

The bottom line is that if the banks don’t reform their culture and practices, the political process will force it.