Financial Institutions

Introduction

The demand for the royal commission into the banking sector of Australia is found to be growing louder. But not all individuals are in support of this idea. As per ABC News, in Australia, a Royal Commission has a unique power in the investigation, which is in some ways, considered to be more wide-ranging than that of a court (ABC News, 2017). It has been distinguished that this might be because such kinds of commissions are not recognized in determining the individual faults so their powers can be found to be less bound when compared to that of the courts.

Hence, under the act of the Royal Commission there is no excuse for the natural person to provide the providence based on self-incrimination (section 6A), however, the evidence that is provided to the Royal Commission is not acceptable contrary to the individual in the proceedings of civil or criminal in any kind of Australian court (section 6DD).

In similar to this the legal professional privilege is more condensed than in the court of law (section 6AA). The start of the Global Financial Crisis is from the disaster of subprime. Having an understanding of the crisis is important (Adams, Füss & Gropp, 2014).

Here the important facts about the banking sector in Australia have been briefed which are as follows: There was a development of a large industry of making unreliable loans, sold using destructive lending, by crooked lenders, etc. Other than this various other banks in Australia including the Bank of America got engaged in fraud documentation at the level of the industrial scale (Babb & Kentikelenis, 2017).

These unreliable loans have been sold in a huge number known as CDOs. These CDOs were considered to be risky ones have been sold with a worth of hundred billion dollars to all the banks throughout the world. The actual point is making dealings that are unreliable and practicing a culture that is unethical in the banking sector of Australia can create disasters and national and international problems.

The Invisible Man

Need of Royal Commission into the Banking Sector

As per Bhagat, Bolton & Lu, in our society and economy, the services that are related to banking and finance will play a fundamentally significant and constructive role. But there would not be wealthy high streets without the presence of wealthy back streets and banks are found to be crucial for both providing services and credits to households and businesses whether it is large or small.

This is the reason why it has become the national interest that the people and the companies are in a position to have clear-cut confidence in these particular institutions. In recent years with the help of the disclosures, this kind of confidence has become challenged (Bhagat, Bolton & Lu, 2015).

According to the Board, these disclosures have been obtained most of them by Fairfax Media and specifically via Adele Ferguson’s investigative work regarding the fights of interest, the ragged treatment of the customers of insurance, manipulation of the market, the shabby treatment of the informers, the role of the institutions in the offshore tax havens and of others uncertain behavior (Board, 2015). It has been argued by the services of banking and finance that these prayers will reflect merely a few numbers of bad instances, but there would not be an in-depth problem with the culture of the industry.

As there would be the mounting of disclosures and allegations the current one in the financial markets is the rigging of the key rates of interest the concept that any kind of bad behavior is not usual and has become weak. Further, it has been sought by the bank to bend at criticism and the examination by demanding that the internal investigations fix any kind of problems.

It has been noticed that the institutions can’t conduct the investigations independently. In recent years, it has been argued consistently that the governing bodies, particularly the corporate regulators the Securities and the Investment Commissions of Australia have failed to investigate and laws the sector of financial services (Chen, et al., 2014).

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It is again wished with them for enhancing the performance. A senate inquiry recommended the Royal Commission two years ago to investigate the forgery of the Commonwealth Bank along with the allegations and fraud in its operations of financial planning. After this, the attention has been broadened and now the whole sector is perceived widely with distrust and suspicion (Čipčić & Pavić, 2016, January). Recently the banks, have been fuelled which has failed to pass the cuts in the official rates of interest and requested to be under the pressure of cost while figuring out the margins of profit which in most industries is the envy of the companies.

So, given the key significance regarding the services of the banking and the financial companies and comprehensible view in the confidence of the public in this sector, it is believed by The Age concerning the argument about the Royal Commission is reaching the leaning point. Although it is not said publicly it is expected by the banks that the royal commission would occur and the cause will be forced from the crossbenches of parliamentary.

The calls have been resisted by the alliance before the election right from the labor for such an inquiry which is judicial however, these are already present on the government benches who had the belief that it should happen.

In recent months it was publicly and sharply criticized by Malcolm Turnbull on the banks numerous times and he was arguing by forcing them at least once a year to appear near the panel of parliamentary so that it would cause them to fix their ways (Code, 2016).

Da Gbadji, Gailly & Schwienbacher said that it was believed that would not be sufficient. It is agreeable with the Prime Minister that the leaders of sectors have failed in fixing the culture which has betrayed the trust of the public arguably as it has provided important financial support to the banks during the period of financial crisis globally and after that (Da Gbadji, Gailly & Schwienbacher, 2015).

A royal commission might be expensive and will take most of the time, so it is believed that there is a requirement for helping the sector in clearing the problems with the help of its internal culture and establishing it again and supporting the confidence of the community. Ultimately, it is in the interest of the sector along with the entire society and economy.

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Right Time for Royal Commission in the Australian Banking Sector

In the concept of royal commission, there is a wealth of wisdom which is the first thing to be noticed while seeking to get off from the place of disorganization. However, in the nation’s wealth, most of the guardians seem to be determined the dig that is not wise into the deepest pit of the criticism of the parliamentary and publicity to the extent of irony that they are taking the risk in helping to bring them to the royal commission which they were trying to avoid. The investigations that were carried out by The Age have revealed much of the results as a part of the evidence for the banks concerning the things that are done wrong in the companies is the outcome of some of the bad apples (Dr. Andy Schmulow, 2017).

It is under the argument that the evidence against the banks has been mounted last year; to institute the royal commission into the integrity of the culture and conduct it is in the national interest of such kind of socially and economically fundamental financial institutions. In recent days authentication to the inquiries of parliament has supported this view (Flannery, 2016).

In the coming days, Westpac and ANZA the chief executives of the CBA will be following NAB, whose verification has revealed the widespread behavior that is poor, in which the cheating done for hundreds and thousands of customers is included, and the payment that is inappropriate of huge and perhaps the excessive bonuses.

To avoid the royal commission this kind of appearance is part of the efforts that are put in by the banks and the alliance of government. The key argument of the discussion is that the laws and the regulations that are already there are very much sufficient in making sure of the treatment that is given properly to the customers by the banks and hence the Royal Commission would just be the expensive inhibition for the functioning of the financial sector in the orderly fashion. This is not at all accepted.

The existing regulators are not inhibited by the legal investigation. It has been argued consistently that the governing bodies which exist specifically the corporate regulator the ASIC were found to fail in their investigation as it was not sufficient (Gennaioli, Martin & Rossi, 2014).

It is to be noted that they are looking for improvement and are pursuing the Westpac currently overdue the industry by lending. Only the second half of the cross-examination of the parliament is being witnessed, in which the CEOs of the banks have agreed to submit the bid collectively to avoid a legal investigation (Hilscher, Landskroner & Raviv, 2016). But even at this level of the new processes, they might wonder if, is there any chance of backing off from the Royal Commission.

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Foundation for the Australian Banking Sector

The above section mentioned the details regarding the right time to which there should be a description of Australia’s banking as well as the financial system. In that context, this portion has been originated in the 19th century as per the British laws and the institutions. Based upon that the commercial financial or banking sector is said to have been established in the year 1817 and by the effect of that Australia experienced the establishment of a privately owned bank.

Thereafter the establishment of this bank provided the issue relating to the legal tender which occurred in New South Wales. This action in further condition is again followed by the emergence of the first savings bank that keeps the record regarding the process of safekeeping of the money of the new arrivals that act within the colonies (Kidwell, et al., 2016).

Thus by the 19th century, there had been a great increase in the number of banks within the new territories of Victoria as well as South Australia. This resulted in such conditions that the British decided against expanding their financial system in the colonies of Australia. All of these acts established the condition that reflected in the settling down of the foreign exchange markets along with the encouragement of competition within the interest rates (Knights & Tinker, 2016). Therefore it resulted in the vast development of the branches of the banking sector within the Australian colonies.

More specifically the right time for the origin of the commission concerning the Australian banking Sector was when Australia felt the enhancement within the investment which is again associated with the extraordinary levels of the building activity as well as the speculation of the property market in the Australian market. At the same time, the banking sector in the Australian colonies is seen to have an increase in their risk levels.

This rise in the risk levels is specifically to maintain the share market as per the competition raised from non-bank financial institutions like pastoral, building, and mortgage companies. Along with that, there has been the condition where there is the collapse of the real estate market, and based upon that the banks try to find better prudential practices (MacDonald, van Oordt & Scott, 2016).

In that context, the Australian banks provided better fare during the time of depression which again highlighted the links between the financial system along with the stability and economic growth as well as employment. The highlighting of the links during the depression occurred in the year 1930.

This year is further responsible for the activity by which all the functions came under scrutiny the result of which the Royal Commission was formed to take care of the Banking as well as the Money by the year 1936-37 (Nawaz, Haniffa & Hudaib, 2014, November). Thereafter the commission provided recommendations regarding various measures that will establish the support as well as the stability of the financial system in Australia by helping in the origin of the financial deregulation.

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Origins of Financial Deregulation:

The regulatory system that prevailed post-war longed to obtain the super visionary and monetary goals through direct constraints on the financial activities of the banks. The regulations that were followed at this time provided restrictions on the operational flexibility of the activities of banks and their capability to compete in the market.

For instance, the rate of interest caps on the deposit accounts posed restrictions on the ability of banks to bring in funds. Similarly, lending was constrained through the guidelines on bank approvals regarding trading (Samra, 2016).

The savings banks had confronted the restrictions in their capability for lending regarding housing by the need to possess the maximum of assets in the form of cash, government deposits, or securities with the central bank.

The participation of the NFBIs developed to complete the gaps that were caused by the constraints on banks which included merchant banks building societies and service corporations to service the market of home lending (Saunders & Cornett, 2014). The bank’s assets faced a decline as a part of the GDP along with the decline of the share of markets of commercial banks from 1955 to 1980.

This had significant implications for the conduction of monetary regulations and policies that depended on the direct controls of financial institutions like banks and also resulted in concerns from an avaricious perspective. The financial authorities in Australia were concerned about the prevailing trend at the initial stage and many steps were taken towards deregulation during the era of the 1960s and 1970s to boost the banks’ position and initiate the establishment denotes by which the implications could be put on the wider system of finances (Sheppard, 2013).

UNIVERSITY AFFILIATION

For example, the maximum rates on big overdrafts were discarded during this time and the rates of interest regarding the certification of deposit were removed in 1973 which allowed certain banks to have some scope in managing the liabilities. Despite every issue, regulations were focused on the competition and domestic market among the local institutions. Making the regulations free of control in certain areas, had implications of increasing stress on the regulations that lingered (The Age, 2017).

The pressures were increasing due to the growing nature of the flow of capital is sensitive to the interest which hugely posed implications in the establishments of the subsidiaries of merchant banks of the foreign banks that had funds accessibilities from the counterparts that are overseas parent organizations.

These capital flows were volatile which along with the exchange rate led to complications in the efforts to regulate the domestic liquidity and maximize the differential regulation implications among various aspects of the financial system. The requirement of the central banks to provide funding to any shortfall in raising the debt of the government as an outcome of the mechanism of raising debts that are not efficient added to the issues with the management of liquidity. The Government of Australia instigated a wide-scale review of the financial system of Australia which was named as Campbell Committee in the year 1979 (Ueda & Di Mauro, 2013).