New RBA chief Philip Lowe: I agree, banks have a big trust gap

September 23, 2016
DAVID UREN, Economics Editor, Canberra
Originally published in The Australian, 23 September here (Paywall)

The commercial banks have ­forgotten that the essence of their industry is trust, the new Reserve Bank governor Philip Lowe says, adding that bank leaders should place their duty of care to their customers above making sales.

Remuneration structures with rich incentives for bankers to make sales are at the heart of the problem, Mr Lowe said in his first appearance as governor before the House of Representatives economics committee in Sydney.

With Labor pressing for a royal commission to investigate the banks, Dr Lowe said there clearly was an issue with bank culture.

“I cannot help but agree with you that there have been too many examples of poor outcomes, ­particularly in the wealth management and insurance industries. That is disappointing to us all,” he told Labor MP Matt Thistlethwaite. “What I would like to see is, really, banking return to be seen as a strong service profession.

“I do not know how far away from that we are.

“Banking, historically, has been a profession — a profession of stewardship, custodians, service, advisory, counsellor. It is not a marketing or product-distribution business; banking is a profession.”

MORE: Westpac ‘must bridge trust gap’

Dr Lowe’s comments came as Westpac chief executive Brian Hartzer announced he would scrap product-related incentives for the bank’s 2000 tellers next month.

Mr Hartzer acknowledged banks had a “trust gap” and they had to bridge it. “Rather, (tellers’) incentives will be based entirely on customer feedback about the quality of service they received in the branch,” he said.

Dr Lowe called on bank leaders to follow him in signing the “The Banking and Finance Oath”, a code of conduct developed by the banking industry that declares trust is at the heart of the profession.

“We have got to move beyond people just signing this oath to ­actually making that in practice,” he said.
“I do not run a commercial bank. I do not know how to embed within a commercial bank the idea that trust is the foundation of the noble profession that we do.”

The chief executives of the ANZ, NAB and Westpac have signed the oath but Commonwealth Bank chief Ian Narev is yet to do so.
Dr Lowe said he suspected ­remuneration incentives lay at the heart of the problem.

“That is a responsibility of management. And, probably, APRA (the Australian Prudential Regulation Authority) can play some constructive role in encouraging remuneration structures that ­create the right incentives within organisations.”

Dr Lowe said remuneration structures should “promote ­behaviour that benefits not just the institution but its client”.

Although critical of aspects of bank culture, the RBA chief said the businesses had been well-managed before the global financial crisis and that meant Australia had suffered much less than other ­nations. “The Australian bank system has performed well over a couple of decades,’’ he said.

“We did not have the excessive risk-taking culture in the lead-up to the financial crisis. I think that is really important.

“ If we had a really bad risk-taking culture, we could have ended up in the same situation as many other countries did. Part of it is due to APRA’s good regulation, but the banks did not develop this ­culture that we saw overseas.”

The Oath

  • Trust is the foundation of my profession.
  • I will serve all interests in good faith.
  • I will compete with honour.
  • I will pursue my ends with ethical restraint.
  • I will help create a sustainable future.
  • I will help create a more just society.
  • I will speak out against wrongdoing and support others who do the same.
  • I will accept responsibility for my actions.

In these and all other matters;
My word is my bond.

The Vision

A banking and finance industry that meets the community’s needs and has its full confidence thereby fulfilling its integral role in society.