Musings

The Dark Side of Banking

At the risk of stating something unpopular in the contemporary climate, banks and other finanical institutions, like any other business, exist to make money for their owners, which in the case of most banks and other financial institutions means their shareholders.

Despite some commentary to the contrary, no bank or financial institutions exists solely as some form of social service. They are a business, they are designed to make money, and offering products and service to their clients or customers is the business model that underpins their existence.

No such corporation will survive long if it doesn’t continue to make a profit more than it makes a loss financially. That is a simple fact of economics.

That being said, there can be much said about how banks and other financial institutions go about ensuring their longevity by making more money than they lose. And that has certainly been the focus of the current Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Since the first public hearing, and especially in the last week as the focus of the Royal Commission has shifted to the realm of ‘wealth management’, the revelations elicited by the Commission process have been less than edifying about the business practices of the banking industry. Revelations of bribery, charges for services not delivered, charges for deceased clients, etc. have, by and large, confirmed in the mind of the ordinary Australians what they suspected: banks and other financial institutions are engaged in some less than ethical – and at times downright illegal – practices.

Of greater concern, perhaps, is the revelations that participants in the banking industry have been contemptuous of the regulators involved in supposedly ensuring unethical practices and misconduct do not take place. Combined with cuts to the funding of these regulators by successive governments, this contempt on the part of the industry participants highlights the way in which profits are put far and away above the interests of those from whom those profits are extracted.

As I’ve already mentioned, banks and financial institutions exist to make money for their owners. I have no problem with that whatsoever. What I do find problematic, however, is the apparent business model embraced by industry participants. Rather than a business model focussed on the ethical delivery of services to clients and customers with a view to the needs of those clients and customers, banks and financial institutions seem to believe that clients and customers are merely ‘cash cows’ who can be milked for anything and everything regardless of what might be in the best interest of the clients and customers.

The preferred business model – of delivery of services in the interest of clients and customers – can be a very profitable model, one which can permit banks and other financial institutions to consistently deliver value for their shareholders. A return to a focus on the needs of clients and customers, rather than profits alone, would go a long way to restoring, partly at least, the trust that has been undermined by the revelations currently coming from hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

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