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AUSTRALIA’S BANKS ARE WOUNDED, BUT NOT SLAIN

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The Royal Commission into the banking and finance sectors has uncovered damning evidence of inappropriate conduct among Australia’s top banks. The Commonwealth Bank was found to have charged fees to a client despite knowing that they had died in 2007. Anthony Ryan confessed that AMP had essentially stolen client’s money by charging fees for no service (a practice the Commonwealth Bank was also found to have engaged in).

And then there were the instances of dishonesty, the falsification of documents, and the handing out of irresponsible loans uncovered by the Commission.

As one may well imagine, the fallout from the Commission has had a largely negative effect on the banks. AMP has rejected criminal charges. But their CEO, Craig Mellor resigned in the middle of April, and they have replaced their Chairman, Catherine Brenner, with David Murray. Similarly, the Commonwealth Bank agreed to pay twenty-five million dollars in legal settlements after ASIC brought legal action against them over bank bill swap rates.

Analyst Morgan Stanley expressed concern over the outlook of the 2019 financial year, according to a report by Business Insider. Mr. Stanley has argued that the “negative stance” on the major banks reflects a more bearish economy.

Similarly, Financial Review reported that foreign investors had taken a negative view towards Australia’s banking sector, and the financial services firm AMP. The Chief Investment Officer of Credit Suisse Private Banking in Australia, Andrew McAuley commented that “our intel is telling us that banks are being shorted by overseas investors.”

And, by extension, there is a clear and present danger that Canberra will act in a knee-jerk reaction and vote for more stringent regulations on banks. The kind of regulations that will make it harder for the banks to operate effectively.

Despite all this, it would foolish to write off Australia’s top banks. The finds of the Commission, though damning, does not change the fact that banks play an integral role in Australia’s economy. Banks provide a place for people to store and protect their money, facilitates loans, and helps people invest their wealth. And in a culture that seems more interested by which overgrown monkey will kick the most goals in a football game, or which brain-dead contestant on The Bachelor will break down into tears first, it is very likely that the banking scandal will be forgotten rather quickly. Australia’s banks may be wounded, but they have not been slain.

CONCERN OVER BUSINESS LOAN INTEREST RATES

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A briefing paper from the UK Parliament, entitled ‘Interest Rate Swaps on Business Loans‘,  claims that the growth of individual complaints combined with increased media interest indicates that a financial scandal may be brewing. Its primary concern is over business loans with attached interest rate conditions.

These loans have proven to be very expensive when compared to the rest of the market. As a result, many business owners have claimed that the extraordinary economic backdrop and poorly understood and complicated financial contracts have left them paying exorbitantly high-interest rates. The report claims this has occurred due to a fall in interest rates following the financial crisis.

The economic indicators for July have revealed that the UK has experienced accelerated yet moderate growth, an increase in employment, and a faster growth of inflation than normal. Over the last financial quarter, the UK economy has grown by 0.3% whilst gross-domestic-product has grown for eighteen consecutive quarters.

The financial services authority is looking into this issue.