By Joe Montero

It’s just not good enough. The proposed changes to the Australian Banking Association (ABA) code of conduct won’t fix what is wrong with the banks.

A series of high profile scandals forced the government into an inquiry. Malcolm Turnbull and his key ministers had made it abundantly clear that they didn’t want to. But there was such an outcry that it forced their hand, and the Financial Services Royal Commission came into being.

This Commission is seriously flawed. Its terms of reference are wide enough to deflect a fair bit of attention from the banks. Despite this, some startling and well publicised truths have come out, and they have done nothing to improve the reputation of the banks.

Now we are being sold another pup.

Under the new code, there is a commitment to look after vulnerable customers, limit the hard selling, improve assistance to customers in financial difficulty, and to enhance dispute resolution. These changes are needed, but on their own they mean very little. They only deal with some of the symptoms and not the problem.

This is that the largely unregulated banking industry exists, as a conduit between the big corporations. The vehicle for the supply of funds and circulating money. All the banks are closely integrated with these corporations, sharing the same major shareholders, cross directorships and integrated operations. The whole operates as a giant cartel.

Throw in an ongoing and long-term economic downturn, with the fall away manufacturing and an excessive growth of the financial sector, relative to the rest of the economy, the search for alternative sources for investment was bound to take on an increasing intensity. The shareholders and the banks as individual identities are in the game to maximise their own profit.

The deregulation, which began in the 1980’s and is almost complete now, provided an opportunity for quick high returns in the speculative markets. Through this, the banks have made enormous profits, at the expense of other parts of the economy. So much so, that the handling of money has passed the provision of goods and services, as the engine of the economy.

Much of the money used for this purpose has been drawn through the building of household and individual debt, sweetened by squeezing customers and reducing services to cut costs.

Reliance on speculative banking is inherently risky and provides a strong incentive to pass the cost onto the community. This in turn, creates the perfect conditions for an escalation of corruption. The series of scandals and revelations from the Commission, have made it clear that this has come to pass.

In comes the code of conduct, to meet mounting community anger, which compelled ASIC to demand a response. But this response is no more than a public relations exercise, to hoodwink an angry community that the banks have learned a lesson and are mending their ways.

The new code of conduct had been discussed at the commission, when the ABA chief executive Anna Bligh called up to the stand in May. It has now been approved by ASIC.

Australia cannot afford to leave it at this. Although anything that promises improved ethical behaviour is welcome, promise can’t be trusted.

Breaking the giant cartel is a big ask. This does not mean it should not be an ambition to meet at some point. Nor does it mean that some more immediate measures can’t be taken.

Practical measures are needed to bring change to the way banks have been operating. There must be significant national control over how the funds they hold are used. There must be a legal barrier that prevents the mistreatment of customers. Senior officials within the banks or related entities acting corruptly, must face criminal charges. Australia needs to establish a government owned bank, which sets the pace for proper behaviour and provides an alternative for depositors to take their money out of badly behaving banks. Assistance can be given to cooperative banks to deliver another alternative. Anything short of this will make no real difference.

Only if steps like these are taken, will it be possible to take on a substantial part of that is the cause of the bad behaviour Australia has been suffering.

The new code of conduct must not be allowed to be used to divert attention from what needs to be done.