Speaking at the FPA Congress in Sydney last week, Mr Costello said that during the financial crisis, the Australian banks came through unscathed, saying that, in 2010, four of the six AA-rated banks in the world were Australian.
He said that the story of the banks in the Hayne royal commission is not about how they fell into disrepute because they failed; it is more a story about how they fell into disrepute at a moment of great achievement.
“I think coming out of the financial crisis of 2008, a lot of the bank executives thought we’d passed the crisis, had done incredibly well, and started to believe in their own immortality, and lost sight of their customers,” Mr Costello said.
“We have a very good regulatory system in Australia ... and that was a big part of their success, but I think they began to believe it was all their own brilliance and took their eye off the consumers.
Ten years on, Mr Costello thinks the Australian banks are probably more ‘on the nose’ than they’ve ever been, saying that a certain arrogance took over within the banks.
Further, he said the regulators were weak in response, which led the banks to treat them “with disdain”.
“The reporting of cash transactions … cost the CBA $700 million. Remember that, $700 million of shareholders money was paid in fines because they failed to report cash transactions properly,” Mr Costello said.
“That could’ve been fixed. It could’ve been fixed if they’d shown a little bit of sensitivity towards the regulator and they listened to the complaints.”
As a result, Mr Costello said that it’s much better to listen to criticism early and deal with it than to dig yourself in when the ultimate cost is going to be much greater.
“The regulator knocks on your door. Sometimes, they might be wrong, they might be sort of bureaucrats, but sometimes it’s better to give ground early rather than pay the price late,” he said.
“I think some of these banks would say maybe we should’ve co-operated early on the reporting of cash transactions. We would’ve saved ourselves $700 million.
“That would’ve been good. There’s an idea for you, instead of saying, ‘We’re the banks, you can’t tell us what to do’, because they’ll catch up with you eventually.”
