What impact will a Royal Commission have on the banks?

Ross Greenwood speaks to Sharid Jain from S&P Global Ratings about what impact a royal commission have on the banks’ credit ratings

Introduction: What impact will a Royal Commission have on the banks?

Ross Greenwood: Welcome back to Monday news right around the country. I keep remembering what John Howard said about a royal commission into the banks. Remember what it was that the former Prime Minister John Howard said? Just listen to this.

John Howard: I would be staggered if the coalition proposed a banking royal commission, that is rank socialism.

Ross Greenwood:  Rank socialism. It does nothing for the Prime Minister Malcolm Turnbull to dissuade the public that he has not brought the government, the coalition government swinging to the left, that is John Howard. Then there’s the other question about the government argued uphill and down dale that a royal commission was not needed, mainly because banking laws in Australia are also incredibly strong, in fact considered to be some of the strongest in the world. Therefore, if a royal commission is somehow now needed, other than for political reasons, you would imagine those people who are looking at Australia, just as we spoke with David Murray, the former boss of the Financial System Inquiry, he was concerned because he says international investors will look at Australia and say, “What’s wrong with it?”

Well, let’s try and find out whether anything is wrong. Sharad Jain is the director Financial Institutions Ratings at S&P Global Ratings, Standard and Poor’s. He’s on the line right now. Sharad, many thanks for your time.

Interview with: Sharid Jain, S&P Global Ratings

Sharad Jain: Hi Ross.

Ross Greenwood:   From a ratings perspective, do you think anything is wrong with bank regulation in Australia?

Sharad Jain: No. Look, we think the banking regulation and supervision in Australia is of very high order. That’s based on the information that we see and understand. At the moment, we do not see any significant gaps or weaknesses in regulation supervision or standards.

Ross Greenwood:  Will you potentially change your mind if information comes to light? Because it seems to me that this is a massive political fishing exercise as distinct from anything that is strategic about knowing that there is significant wrongdoing that is structurally affecting these banks.

Sharad Jain: Yes. Look, if new information does come to light and if we do see information that we have not seen before, and that establishes that either they are weaknesses within the regulatory institutions or within the banks, there is systematic wrongdoing across the board or at massive scale that’s affecting the banking system, and is indicative of greater risk-taking than what we have considered, then certainly, we would be looking at revising our ratings downwards.

Ross Greenwood:  You have said today that you consider that Australia’s existing laws and regulations covering our banks are the strongest in the world and do you not believe there’s been any systemic manipulation of the rules. As you say, there might be information comes forward, but that’s a pretty black and white statement, which raises questions about why Australia would need a royal commission at all.

Sharad Jain: Yes. Look, that’s a decision for those who are considering that viewpoint and different people can look at the same information and come to different conclusions. I wouldn’t discount the possibility that alternative perspective does have merit to it. I wouldn’t discount the possibility that something may come out of the royal commission that that would have presumably strong and wide-ranging mandate. If something does come out of it, then sure, we’d have to take that into consideration and if that makes us revise our views, so be it.

Ross Greenwood:  What you’re saying Sharad is that the mere calling of a royal commission does nothing to make you doubt either the laws or the regulation governing Australia’s banks, to therefore, downgrade those banks and/or even these Australian government, which though you still have got it on a negative watch and suggest that there’s a one in three chance over the next two years you will downgrade Australia’s AAA credit rating. The fact is, right now, even the calling of this royal commission does not prompt you to change any of those ratings.

Sharad Jain: That’s right, the calling of royal commission by itself is not something that we see as indication of any weaknesses.

Ross Greenwood:  Tell you what, great to have you on the program. Sharad Jain, the Director of Financial Institutions Ratings at Standard and Poor’s Global Ratings was great with his time, but do bear in mind, it has not changed its ratings on the mere calling of the royal commission, but even that note does raise questions about why Australia actually needs a royal commission. Sharad Jain, we appreciate your time here on the program.

Sharad Jain:  Thanks Ross.

Essential stories relating to this article

Money Minute – December 1 2017 Banks Commission .

Newsletter – December 1 2017 .

Interviewed  Barry O’Sullivan, Senator, Nationals titled ” Is this man responsible for the Royal Commission? .”

Interviewed  Kelly O’Dwyer, Minister for Revenue and Financial Services titled ” Why has the PM back-flipped on a Royal Commission into the banks? .”

Interviewed  Martin Fahy, CEO, The Association of Superannuation Funds of Australia titled ” Why have Super Funds been dragged into the banking Royal Commission? .”

9News: Bank customers may not see their money while Turnbull is prime minister .

Interviewed  Peter Whish-Walsh, Senator, Greens titled ” Has the banking inquiry got the green light? .”

Interviewed  John Wacka Williams, Senator titled ” Why are the Nationals pushing so hard for a bank inquiry? .”

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