JOURNALIST: Senator Wong, good morning.
WONG: Good morning.
JOURNALIST: Well Joe Hockey says Wayne Swan is a laughing stock. He, Joe, wants to introduce a private members bill on some of these banking issues. And Gail Kelly says that there is room for quiet thought and discussion around the issue of bank profits. So where is the common ground here?
WONG: I think that there is common ground on one issue; that most people think that what the Commonwealth Bank has done is really not consistent with good corporate behaviour. Certainly not something that is good for their customers and I think theyve been rightly criticised and condemned for it.
But look, this is a tough issue and its tough in real terms for many of your listeners people who are dealing with cost of living pressures and so forth. The question is what can the Government do? And the best thing the Government can do is to try and support competition because sometimes the only thing that is going to make banks listen going to make banks behave is the knowledge that people can walk out the door, walk down the street and get a better deal with someone else.
JOURNALIST: Now Mr Swan has talked about that a lot and says that there are plenty of plans being implemented to allow people to do it. The Government is still actually the biggest bank customer in Australia. So why doesnt the Government do what Mr Swan tells consumers they should do, and move some of its own business between banks or to smaller banks to encourage some of this competition?
WONG: Youre not the first person who has made that suggestion to me in recent days and obviously theres a bit more focus on these issues given whats happened and given the actions of the Commonwealth Bank. And we are always looking at ways to support competition. There is a bit of a case where agencies, different parts of the Government, run their own financial arrangements. Theyre not always centrally run. But certainly as Finance Minister and Ive got a fair bit of responsibility in this area Im absolutely open to exploring ways in which we can try and encourage competition as a customer and not just as a regulator or as a Government.
But we have done a range of things. We are cracking down on unfair mortgage exit fees. So thats if youre going to get a penalty if you change mortgages from one bank to another that acts as a disincentive or a barrier for people to move. So were cracking down on those. Weve invested in whats known as residential mortgage-backed securities, which is a fancy way of saying this is a funding stream particularly for small lenders so they can continue to compete. Look Deb, absolutely theres more to do.
JOURNALIST: Earlier in the week we had an example here on Mornings of sort of a transaction company that was given a special banking licence and now carries about 8 per cent of Medicare settlements. Is there an opportunity now to create even more niche banking licences to encourage customers and also give opportunities to finance industry entrepreneurs prepared to actually stump up real money, organised cash, thats beyond the realm of the current existing four pillars?
WONG: Thats a very good question and at the highest level, the thing youve got to balance when it comes to the banking sector is stability and competition. They are the two key objectives. You want a stable banking system but you dont want it so stable that it effectively rules out competition. And what youre pointing to is competition in different parts of the market so the sort of company youre talking about obviously has the capacity to engage in payments. I think you said Medicare payments, so theres an example of the Commonwealth doing something good there for someone different. But thats not the same as a banking licence.
So obviously having competition in different sectors of the financial sector is a good idea. But one of the key sectors that weve got to try and encourage, and continue to encourage competition in for Australians, is in mortgages.
JOURNALIST: Now the banks are not a monopoly though it just feels that way. The protection that the Government guarantee brought for the banks during the GFC obviously made them safer. Now with that protection still in existence you have to wonder whether or not you need to charge actually more for that insurance policy towards the banks to encourage them to wean themselves off it. And to also buy you a stream of revenue from this amazing facility that theyve been given. Are you giving consideration to that?
WONG: The banks have been and will be charged fees on one component of the guarantee which is what we call the wholesale funding guarantee. But the one that most people know is the deposit guarantee. Weve got to remember that was good not just for the big banks, but for the smaller banks. One of the things when theres a bit of a lack in confidence in the system that can happen, is people can go to the bigger institutions. So in fact, the guarantee was an important way for the Government to support the smaller lenders and the smaller financial institutions. Weve said we would review this guarantee in October of next year. Well do that.
Some of the issues you raise, which some people describe as moral hazard, are issues that need to be considered. But fundamentally, this guarantee was about ensuring Australians had confidence in our financial system. That confidence was an important reason, an important factor, as to why this economy came through the Global Financial Crisis in a lot better shape than many others.
JOURNALIST: Now its interesting that youve been keen to focus this discussion really on what the Commonwealth has done with its extraordinary interest rate rise. But the profits of the banks have also caused a lot of headlines. Is there a line between a healthy profit and an unhealthy profit?
WONG: I think theres a line between a healthy profit and a profit that people might regard as exorbitant. And I suppose to some extent this is in the eye of the beholder, isnt it? If youre a director of one of these banks, you mightnt mind as much profit as possible. If youre a consumer, youd have a very different view. If youre a shareholder, you might have something in between.
I think the banks need to understand that they operate within a community. I think that the sort of backlash that we have seen broadly over the last few days has been pretty severe. And it does say something about the regard with which theyre held. Profits are a part of that. I dont think Australians expect people not to make a profit. They understand that people who are in business, they want to make a profit. But when those profits become unreasonably large at the same time that people perceive that the products that are being offered are not consumer-friendly, I think theres a problem for those sorts of businesses.
JOURNALIST: Its quite interesting also that people bandy around this term bank bashing which trivialises, really, whats going on in peoples minds. It makes it sound like you can actually creep up on a bank in a dark alley and give it a fright.
WONG: (laughs) With a big club or something.
JOURNALIST: Well I suppose it raises a question about community debate involving the banks, issues around a super profits tax, a wide discussion. Obviously the Senate, of which youre a member, is having this inquiry. How useful do you think that Senate inquiry might be to air and actually review some of what banks have come to accept as the way they operate, unquestionably the way they operate?
WONG: I think its a good part of the discussion and community debate on this issue. And I think Senate inquiries can be very useful in making sure people have their say, and you air these issues. But just on this bank bashing phrase I think we shouldnt dismiss peoples criticisms of banks. Banks arent a service or arent a business like any other sometimes you can choose certain services you use and certain services you dont. But we all need a bank. We all need somewhere to deposit our money and if were able to take out a home loan we all need an institution to provide that. So we have to be engaged with them. Its not like you can choose to buy your coffee or not to choose to buy your coffee. And thats why people feel so deeply, get so upset, when they see banks doing things that they dont think are fair.
JOURNALIST: In a way that leads us to a sort of philosophical question because we want a fair and enterprising society; you need a place where talented risk takers can actually get money and do things and be encouraged to succeed. But those success stories, among them the bankers, probably also need to take a bit of pride in contributing to the common good. And that raises the question about at the top level of these Australian banks, does there need to be a revisitation in a lesson in ethics among them?
WONG: Thats an interesting question, isnt it? Can you teach people to be ethical? I suppose you can encourage it. When I was in Opposition some years ago I had corporate responsibilities as one of the portfolios I did and I remember people saying you cant legislate for bad behaviour. And its true. You cant legislate if people have got a bad attitude. But you can try and encourage high standards.
And I think that the lesson for the banks is probably in the media over the last few days. And I dont think that can be dismissed by people. I think what that reflects is a very deep-seated disquiet and anger amongst the Australian community and these are big institutions. Theyre part of our society and I hope that theyve taken account of that.
JOURNALIST: Senator Wong, thank you very much for your time this morning. WONG: Good to speak with you.
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