Hayne was not the commission the banking sector needed

But without the brokers the competition on the banks would be much less intense.  Brokers keep the banks honest, because they recommend from a panel, not just from one bank. And they also operate as a de facto distribution network for smaller financial institutions, increasing the number of viable lending institutions.

Hayne thought the broker is conflicted by the “trail” commission (a part of the total commission that is paid over the life of the loan), but this is another non-sequitur. Once the bank pays the commission it is almost irrelevant whether it is paid in one lump sum, or over a longer period of time. The trail commission is a check to ensure that brokers aren’t enticed to churn loans between lenders, and that if the borrower does terminate the loan early for some reason the broker shares in the pain with the lender.

There is one caveat that I would put on finance brokers, and that is that they should never be owned by a bank, as Aussie Home Loans is.

Another mistake that Hayne made is to recommend special conditions for rural lending. Rural lending is difficult, and there are only a small number of financiers who get involved in it. Stopping banks from charging default interest, and forcing them into mediations, potentially makes the business even riskier for the lender.

What that means is not better conditions for borrowers, but fewer borrowers and higher interest rates as some lenders limit the risks they will take, and others vacate the field altogether. Agriculture is an internationally exposed industry, and the last thing it needs is an inflexible finance system.

There was one good thing to come out of the commission, and that was the recommendations on superannuation: to appoint directors on the basis of merit, not union or employer representation; and that employees should only have one default superannuation fund.

The ALP has resisted government moves to ensure superannuation funds have independent directors, so Hayne may put them in a position where they now have to reverse their position. And ensuring employees have only one default fund would be good for workers and break the dominance in the super field of Industry super funds, which are for all practical intents and purposes union super funds, have.

However, Hayne does not have a mechanism for how this might be achieved, so watch for the unions to use this to fight back.

Economists tend to focus on economic settings when analysing what makes an economy tick, but that is only a part of the story. The strengths of Western, and Westernised, economies is their high levels of trust; scientific, industrial and cultural innovation; and the way we pool resources to meet commercial ends.

A healthy banking sector is part of that. It is a guardian of trust in the monetary system, and an integral cog in the machine of pooling and sharing resources for commercial ends, including innovation.

It’s long due a proper overhaul, but the Hayne Financial Services Royal Commission wasn’t it. Perhaps before too long a proper inquiry, run by a multidisciplinary team, could be convened to do a proper structural overhaul, with broader terms than Hayne, and in a less politicised environment.