It is a tricky time for sitting politicians right now. With the release of the long-awaited Hayne report from the Royal Commission inquiry into widespread financial misconduct now imminent, there are plenty of decisions to make.
With the banks themselves having been lambasted for all sorts of reasons, from charging for services for deceased customers, to selling products that were not suitable for vulnerable households, a range of problems have been unearthed.
However, the report is also being released with elections in the not too distant future, and how the ruling coalition deal with this may well indicate whether voters will back the Liberal Party and ruling Scott Morrison, or swing towards Labor with Bill Shorten.
This leaves sitting treasurer Josh Frydenberg in a position where he must tread carefully to get the right results. The banks have struggled since some of the revelations were made public, as shareholder revolts over banker bonus pay, and tightening profit margins have all led to persistent rumors of an upcoming credit squeeze.
To ignore the recommendations of the report would be seen as something akin to political peril, and one that they would likely be punished for at the polls later in the year, so taking what Hayne says and implementing it is already assumed to be happening. That said, if they do it at a cost to the banks in such a way that it causes an economic shock, they will be roundly turned upon for that too.
Regardless of who wins the election and sits in charge in half a year’s time, no party would want to preside over what could be the worst credit crunch in over a decade if they take the wrong measures and greatly restrict the banking sector’s ability to grow.
There have already been plenty of reports of banks tightening their lending policies to households and businesses, which makes sense as they try and curb losses through defaults caused by poor lending strategies in the past, but doing this too quickly could easily have a negative impact on the economy in both the short and long term.
Frydenberg has already made it clear that he wishes for the government to be seen in total control when it comes to the response to this and, with Hayne’s report out on Friday, state officials will take time to study its suggestions before making public recommendations next Monday. If they are seen to be out of touch with the public view on this, it could make the already choppy waters harder to navigate ahead of the election as they try and sway voters.
The twofold response will be measured in media reaction to the news, and also how banking shares do on Tuesday. If both sides give their affirmation, it will make it a lot easier for the government to dictate banking policy from now on. However, if they get things wrong it will open up a gap for Labor to prove a point or two.
Plenty of new regulations and legislation is expected to be on the way as the governing bodies and public figures look to show to Australia that they understand the deep dissatisfaction with the way the banks have been run in the last few years, but whether this can come with financial stability in the markets remains to be seen.