12 June 2024

Senate inquiry calls for an enforceable Banking Code of Conduct and govt bank in final report on regional branch closures

| James Day
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A group of people protesting on the street outside the bank in Junee

Junee (NSW) residents protest against the Commonwealth Bank’s branch closure early last year, which resulted in the organisation halting all planned shutdowns. Photo: Struan Timms Photography.

The message from a Senate inquiry report is clear: “Without regulatory intervention, banks will continue to close branches and communities will pay the price.”

After a mass of submissions and several public hearings across the country, the Senate Committee on Rural and Regional Affairs has delivered its final report on bank closures in regional Australia. The report makes eight recommendations to the Federal Government that recognise and provide solutions to the negative impact branch closures have on regional communities.

Committee chair, Senator Matt Canavan, wrote in the report that “it is clear that the current model of banking industry self-regulation has failed to shelter regional Australia from the damaging impacts of bank branch closures”.

“There is nothing in Australia’s existing regulatory architecture that could stop, or even slow the pace, of branch closures, and there is no regulator that routinely deals with these concerns,” the Queensland Nationals Senator wrote. “Banks currently have little incentive to retain branches at all, and particularly not in regional areas where usage is lower, and staff are harder to recruit.

“Under their current Code of Practice, banks have no obligation to provide face-to-face services if they do not consider it ‘financially viable’ to do so – even for their elderly, disabled or vulnerable customers.

“Withdrawal of banks from regional communities is negatively impacting economic development and ‘starving’ regional communities of ‘productive capital’.

“Banks can, and do, walk away from communities they have served for decades, with little warning and no consultation. This is unacceptable.”

Independent researcher Dale Webster, who made a significant contribution to the inquiry, said this was a fantastic result for regional Australia and that “all we need now is for the Albanese Government to accept all recommendations in full”.

“The most important change to come from this inquiry is the recommendation that banks will no longer be able to self-regulate and that a banking code of conduct and branch closure processes will be administered by a regulator with expertise in consumer protection,” Ms Webster said.

“The recognition of banking as an essential service at policy level and guaranteeing reasonable access to cash and financial services for all Australians is an important first step to enshrining these protections in legislation.”

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The major banks have been closing branches across the country for decades.

According to Ms Webster, in 1975 there were 2804 banks in more than 1126 regional locations. As of May this year, just 896 remain open – a cut of 68 per cent of the network or a loss of 1893 branches in more than 1000 regional towns, cities and coastal communities in over 45 years.

However, this inquiry was sparked by a rush from the major banks that saw more than 2100 branches close from 2017 to 2023.

Representatives from the Australian Prudential Regulation Authority (APRA) told the committee that this equates to a reduction of almost 40 per cent of branches in metropolitan areas, and 35 per cent of branches in regional Australia. They also said there had been a 60 per cent reduction in the provision of ATMs, including the loss of half of those in regional and remote areas.

La Trobe University’s Dr Klaus Serr cautioned that communities facing additional challenges (e.g. depopulation and negative migration patterns) were particularly vulnerable to the impacts of bank closures.

The Australian Lottery and Newsagents Association (ALNA) said a failure to act to slow down branch closures could lead to a “significant erosion of the small-business landscape in Australia, underscoring the need for a concerted effort to address this de-banking crisis”.

Older woman holding up a bank passbook at a bank branch closure protest

At the Junee protest, Maisie Robinson shows the passbook from the account she opened in 1943. The protest led to the parliamentary inquiry. Photo: Struan Timms Photography.

The first key recommendation put to the government is to “adopt a policy recognising access to financial services as an essential service”.

“To this end, it should commit to guaranteeing reasonable access to cash and financial services for all Australians.”

University of Wollongong Associate Law Professor Andy Schmulow, along with many other submitters, argued the banks are “subject to a social contract”.

“We routinely privatise bank profits but socialise bank losses,” Professor Schmulow said. “No other industry enjoys this benefit … banks, in return for the significant benefit they enjoy thanks to the largesse of society, are morally obligated to ensure that the industry serves the community that sustains it, not the other way around.”

Professor Schmulow said through the Reserve Bank of Australia (RBA), banks were protected from “systemic risk” through guaranteed taxpayer support such that they are arguably “riskless to insolvency”.

Professor Schmulow said access to lower interest rates and ”lender of last resort” facilities created “an extraordinary benefit to bank shareholders who enjoy the benefits of competition in a free market, but with none of the disbenefits”.

“The value of the taxpayer-funded guarantee enjoyed by Australian banks has been estimated to be worth up to $3.7 billion annually.

“Since the 2004 Senate inquiry, Australian banks have enjoyed, thanks to taxpayer support, savings in funding costs of approximately $74 billion. That may be expected to be sufficient to fund a thousand branches, for a thousand years.”

Due to overhead costs making branches unprofitable, representatives of the major banks were unlikely to support a legislated community service obligation. Except for Commonwealth Bank CEO Matt Comyn, who agreed that banking was an essential service.

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In line with this social obligation, the committee recommended the Federal Government develop a mandatory Banking Code of Conduct or Customer Service Code (Code).

They said it should incorporate a robust branch closure process, to be administered by a regulator with expertise in consumer protection. The regulator can approve or defer any closure request, which if they fail to comply with can result in penalties.

Evidence from the Banking Code Compliance Committee (BCCC) confirmed the growing frustration made clear over the inquiry: that the banks’ revised branch closure protocol has not lived up to the expectations of stakeholders and does not represent due diligence.

The BCCC reported this to be particularly true around insufficient notice of branch closures, inadequate transition arrangements, removal of ATMs, and problems with ”alternative banking channels” (like understaffing in call centres).

The incorporation of the ”if commercially viable” caveat in the Banking Code is what the committee believes to have rendered the banks’ closure protocol “largely meaningless”.

As for breaches of the Banking Code, both the Australian Securities and Investments Commission (ASIC) and APRA confirmed they had no powers to enforce the code or regulate branch closures.

When ASIC Commissioner Alan Kirkland was asked where people should go to make a complaint about a potential breach of the Banking Code, he said it was overseen by the BCCC and taken into account by the Australian Financial Complaints Authority (AFCA) if it came from individual consumers.

However, AFCA declined the committee’s invitation to appear at a public hearing for the inquiry, and submitted that it “actually plays [a] limited role in this space”: “A bank’s decision to close a branch or to move some of its business bankers to other branches is an example of a financial firm’s commercial judgement and AFCA does not ordinarily deal with these complaints.”

The Financial Services Union (FSU) suggested that the current industry code of practice was simply a “public relations document” for the Australian Banking Association (ABA), that member banks “easily ignore their current voluntary code”, and that “punishment(s) are next to worthless”.

To have any real “substance”, the FSU advocated for a mandatory code.

Professor Schmulow was “very sceptical” about the ability of ASIC or APRA to enforce any such regulations, instead suggesting the government introduce “something like a UK-style regulatory framework and empower the [Australian Competition and Consumer Commission (ACCC)] to enforce it”.

The then government-owned Commonwealth Bank in Griffith in 1920.

Following recent closures, there’s been a push for the return of a government-owned bank like the Commonwealth Bank of Australia in the past. Photo: Western Riverina Libraries.

Along with recommendations to bolster the availability of community bank branches and financial services provided under Bank@Post agreements, the committee said an expert panel should be commissioned to investigate the feasibility of re-establishing a publicly owned bank.

Several submitters supported the idea of a stand-alone national public bank or one supported by using the branch network of Australia Post (PostBank).

The Australian Citizens Party (ACP) said a key benefit of a public bank would be its ability to support investments in farming and small business, especially in regional areas. It could also guarantee access to cash, support the viability of postal services, invest in local and community infrastructure, and provide financial services to “neglected communities”.

However, the FSU did not support a government-funded public bank, with its representative from Queensland, Wendy Streets, explaining the banks are merely shifting their costs back on to the taxpayer.

In his personal submission, ACP production manager and editor Glen Isherwood argued that when the CBA was created, “the private banks immediately improved their treatment and services of customers, including by dropping fees”. He also said the opening of Kiwibank in New Zealand in 2002 had led to “a halt to branch closures”.

Mr Isherwood said introducing a public bank to compete against the major banks was “the only lasting way that the banks will be compelled to serve communities”.

Professor Schmulow said the idea of a PostBank had been “kicking around for a while” and argued “there’s a need for it”. However, he also cautioned that any new entrant into the banking market would have to face strict prudential regulation and high “capital adequacy rates”.

With these strong barriers to entry, Professor Schmulow simply said: “Good luck with that.”

Original Article published by James Day on PS News.

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