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A history of failed reform: why Australia needs a banking royal commission

By Thomas Clarke - posted Monday, 12 September 2016


A licence to operate?

The banks have experienced continuous systemic risk (partly of their own making), erosion of their integrity, and a loss of public trust.

The Australian banks are on notice that they need to renew their licence to operate, to reconnect with their sense of duty and the Australian people, and to reconfirm their responsibilities to the Australian economy. This will occur, even if it takes a royal commission to achieve it.


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A timeline of banks behaving badly

January 2004: NAB foreign currency options trading

NAB announces losses of A$360 million due to unauthorised foreign currency trading activities by four employees who concealed the losses. Bank risk policies and trading desk supervision prove ineffective. NAB sacks or forces the resignation of eight senior staff, disciplines or moves 17 others and restructures its board of directors. Four traders, including the head of the foreign currency options desk, are subsequently prosecuted and jailed.

2008: global financial crisis takes down Opes Prime, Storm Financial, Allco and Babcock and Brown

The market capitalisation of the stock markets of the world peaks at US$62 trillion at the end of 2007. By October 2008 the market is in free fall, having lost US$33 trillion dollars, over half of its value in 12 months of unrelenting financial and corporate failure. Originating in the toxic sub-prime securities of the New York investment banks, the financial crisis threatens to engulf the economies of the world.

The mythology today is that Australia miraculously escaped the global financial crisis due to the resilience of its regulatory system and the governance and risk management of its banks. The reality is that more than a dozen significant Australian companies went under during the crises (amounting to losses in excess of $60 billion in total). In almost every case at least one of the big four banks were involved in supporting the business models and extending credit to very doubtful enterprises.

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July 2012: HSBC money laundering

A US Senate Inquiry discovers that HSBC allowed Latin American drug cartels to launder hundreds of millions of ill-gotten dollars through its US operations, rendering the dirty money usable. The HSBC Swiss private banking arm profited from doing business with arms dealers and bag men for third world dictators and other criminals.

HSBC agrees to pay a fine in excess of US$2 billion to settle US civil and criminal actions. In 2016 it is revealed that UK Chancellor George Osborne intervened to prevent criminal charges against HSBC as this might have undermined financial markets.

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This article was originally published on The Conversation. Read the original article.



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About the Author

Thomas Clarke is Professor of Management and Director of the Key University Research Centre for Corporate Governance at the University of Technology, Sydney.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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