Banking Royal Commission – the facts and what it means for customers & shareholders

What is a Royal Commission?

Royal Commissions are the highest form of inquiry on matters of public importance or concern.

The Government sets the scope of the inquiry and appoints the personnel to carry it out.

How much will the Banking Royal Commission cost?

Oh, about $75 million to start with, but could reach as high as $100 million. Money well spent right?

Who pays for the Banking Royal Commission?

Royal commissions are paid for by the Government, so it’s tax payers money paying the bill.

Analyst Brian Johnson expects the big four banks will spend at least $100 million each on lawyers and advisers to put forward their case to the royal commission.

How long will the Banking Royal Commission take?

The commission will run for 12 months, delivering a final report in February 2019.

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What does the Banking Royal Commission cover?

It will investigate misconduct in the banking, wealth management, superannuation and insurance industries.

Who asked for a Banking Royal Commission?

The Labor government has argued for more than 18 months that a royal commission would make the sector stronger, but until now Malcolm Turnbull has resisted those calls. Last month, more pressure was placed on Turnbull after Nationals senator, Barry O’Sullivan, drafted a bill for a commission or inquiry and two of his lower house colleagues threatened to cross the floor and support it.

With the number of banking and financial services scandals making the news rising, the big four banks conceded there was a systemic issue within the industry and penned a letter to Treasurer Scott Morrision saying they agreed to an inquiry.

The PM had no other choice, but to announce a Royal Commission.

Why is a Banking Royal Commission necessary?

Banks don’t have a bad reputation for no reason. Banks giving out dodgy financial advice, rate fixing, questionable spending of people's retirement savings, etc, aren’t exactly meeting the community’s standards and expectations. Here’s a few headline articles to jog your memory.

What can the Royal Commission do once it has completed the report?

The Royal Commission has the power to summon witnesses and take evidence. It can authorise police to apply for search warrants. Witnesses who fail to appear can face arrest and detention.

It doesn't have the power to order compensation be paid to any of the consumers who were affected by the wrongdoings of any of the banks.

But it can make recommendations for the Government to consider — those could include changing laws and regulations that govern the banking sector.

What does the Banking Royal Commission mean for customers?

The banking industry has warned that homeowners could face higher interest rates as a result of the Royal Commission, as bank funding costs could rise as a result of offshore investors taking a more cautious view of the local industry. Anna Bligh, Chief Executive of the Australian Bankers Association stated, “Australian banks borrow significant amounts of money overseas so that they can lend to people for mortgages, and they need those costs of funds to be as low and reasonable as possible”.

However, experts say the royal commission was unlikely to have a big impact on the local banking sector and its long-term pricing power.

One good thing, is the actions of the major banks will be closely monitored, and major rate and pricing increases will need to be justified to avoid further scrutiny.

What does the Banking Royal Commission mean for shareholders?

Shareholders in Commonwealth Bank and ANZ Bank were hit with a $3.5 billion paper loss last week after the Turnbull government’s Royal Commission announcement. While traders sold down CBA shares by almost 2 per cent and ANZ stock by 1 per cent, Westpac and National Australia Bank each finished the day down only 1c.

Over the next 12 months, it’s unlikely we will see any major impact to shareholders, however the big banks will spend up big to prepare for the inquiry and costs may impact share price and dividends in 2018 and 2019.

Concerned about your finances?

If you have any concerns or questions about your home loan and how the Royal Commission may affect interest rates, give mortgage broker Mint Equity a call. 

To learn more about how Mint Equity can help, contact us on 02 4340 4847.