The son of Wallis, grandson of Campbell, inquiry led by David Murray is due to produce an interim report by mid-2014 and a final report by November 2014. The makeup of the panel was announced by the Treasurer on 20 December 2013, with the Prime Minister announcing David Murray as the head of the inquiry on 20 November 2013.
But what has happened since? So far as I can see, there is no webpage (any search takes one to the 1997 inquiry) and the only submissions are those on the Treasury website for the draft terms of reference.
I think the inquiry is very important – more important than the Commission of Audit – as the Wallis Inquiry established the split between the Reserve Bank (systemic issues and monetary policy), the Australian Prudential Regulation Authority (prudential regulation of ADIs, insurance and superannuation where there are systemic risk issues) and the Australian Securities and Investments Commission (corporate regulation). This regulatory and supervisory arrangement was vital to help our financial system be resilient to a number of crises, most recently the GFC. While the system has proved effective, there is significant scope for further reform to improve the efficiency and competitiveness of the financial system in Australia, reducing transactions costs and boosting productivity growth.
As always, regulation in the sector needs to balance several competing demands: a highly competitive system, adequate reserves to maintain resilience in the case of a financial crisis, credibility, moral hazard and regulatory forebearance among others.
I’m not convinced that David Murray is the right person for this job. He is conflicted, and part of the inside group who resist change and want to protect the present cosy arrangements for the four major banks.
Thus I have some sympathy for these comments from Crikey about Murray’s conflict of interest. Perhaps I’m wrong, but I don’t hold high hopes for significant financial system reforms from this inquiry. I suppose some would say that if it isn’t broken, don’t fix it. But if so why bother having an inquiry?
When then-treasurer Peter Costello appointed Stan Wallis to conduct a sweeping review of Australia’s financial system shortly after the 1996 federal election, the former Amcor CEO sensibly disposed of all his personal shareholdings in financial services companies. Wallis complained at the time that it cost him a lot of money, but it was the right thing to do to avoid even the perception of a conflict of interest.
Fast-forward 18 years and another newly appointed federal Treasurer, Joe Hockey, is repeating the Wallis inquiry exercise, but this time it will be conducted by former Commonwealth Bank chief executive David Murray…When Murray retired from the board of CBA in 2005, his final director’s notice revealed that he owned or had an interest in 542,528 shares, which if retained today would be worth about $40 million, given the stock has reached $74. Murray also retired with an interest in 250,000 options, which presumably paid out given the outstanding share price performance of CBA ever since Costello sold the Commonwealth’s residual 50.1% stake at about $10 a share in 1996.
…Ideally, Murray should follow the lead of Wallis and dispose of all his interests in financial services companies before recommending any reforms to the government that could have a material impact on some of the key institutions. At the very least he should disclose what those interests are and how he intends to handle any perceived conflicts.
The Liberal Party in Victoria is also in a difficult position on the question of a conflict of interest. Since 1999, the Cormack Foundation has disclosed donations to the Victorian Liberals worth a staggering $27 million.
…It is possible to construct the Cormack Foundation’s current circa $80 million share portfolio by tracking the twice-yearly dividend payments it discloses from key investments in the likes of NAB, ANZ, Westpac, Wesfarmers, BHP Billiton, Milton, Argo, Telstra, Origin, Rio Tinto, Transurban and, wait for it, the Commonwealth Bank. Indeed, its holding of 260,000 Commonwealth Bank shares is almost double the value of any other holding, coming in at $19.3 million on current prices.
I will add that David Murray has one more thing to protect in this inquiry: his legacy. He was in control when the CBA borrowed all of the dough offshore that led to it being guaranteed during the GFC – which is really what this inquiry should be all about – so how can he be objective in framing any regulatory response to it?