Federal Bank has been fined a record 700m yuan by Australia`s Trade reporting and Analysis Center (Austrac), a case that in many ways epitomizes problems in Australia`s banking sector over the past 20 years.
While a computer program failure may be a direct cause, it can also be a scapegoat, and the fact is that a computer failure could have happened, not to mention completely unchecked, until more than 53700 transactions that violated their anti-money-laundering obligations took place. The federal bank only discovered the problem, which is a powerful explanation of the deeper reasons.
The first and most important point is that at some point in the 1990s the banking culture lost its way from a moral and prudent model to a culture of sales and service.
The latter, under the banner of "shareholder value maximization," actually reflects the unrestrained greed of management, driven by runaway bonus plans based on key performance indicators.
Excessive short-term bonuses have had a predictable impact: CEOs and managers have become limited to short-term benefits. The problem was kicked to the side of the road like a jar. If the problem persists, then it is time for these executives to go and work for another bank and leave it to someone else to fix it, but they don`t have to go away.
The bank`s sales culture is like a cult led by the "rock stars" chief executives, some not even bankers.
Then the frenzied competition entered its final phase, and as sales became harder and harder, banks turned their attention to cutting costs to squeeze out more profits.
The sales team is certainly not the target of cost cuts, because it would be self-defeating. The main goals are back-office, institutional and compliance costs, all of which have so far saved banks from trouble.
The Austrac`s investigation of federal bank money laundering is just one of many scandals.
Of course, all this is done under the benevolent and lazy gaze of the board of directors whose purpose is to defend the interests of shareholders.
A recent report to the Federal Bank by (APRA), the Australian prudential regulator, shows how inaction and futility these boards are. They should have been held accountable for a long time.
These actions also occur in a regulatory vacuum. In the case of the Australian Securities and Investment Commission (ASIC), it was not so much absent-minded as it was in the first place.
Management greed and incompetence, board indifference and the absence of regulators have all contributed to a number of scandals at the banks, which is why the government set up a royal commission. The money-laundering scandal at the Federal Bank was actually the last straw to crush the camel, the last scandal that government felt compelled to set up a Royal Banking Commission. On this point alone, it is of great significance.
After a decade of exposure to bank misconduct, Austrac`s case is different in other ways. Compared with previous private coordination, Austra chose to sue federal banks publicly. In our view, the $700 million fine is already huge, but in the case of U. S. regulators, the penalty could be much higher.
As the Royal Commission continues to investigate, the Federal Bank is willing to pay so many fines to settle down, which is a good indication of the bank`s current situation.
In this sense, the federal bank case, and the reprehensible behaviour exposed by the Royal Commission, may represent a peak of these bad things in this cycle. In view of our present situation, we would be shocked if the situation did not improve in the future.
But the downside is that the 700 million yuan fine falls largely on shareholders of the Federal Bank. In order for this punishment to be effective, these shareholders, the owners of the company, must be held accountable.
