(Pictured: David Murray)
comment by Greg Bright
There were few, if any, surprises in the report of the Financial System Inquiry. Increased capital requirements for banks, a tad more regulation, some new regulatory bodies to oversee it, slightly sharper oversight and transparency in the planning world, a return to stricter gearing rules for super funds and competitive tenders for MySuper default funds.
As far as inquiries into Australia’s banking and monetary system go, the Murray Inquiry is unlikely to interest future economic historians much, except in all that it didn’t do. To a certain extent, it wasn’t entirely Murray’s fault. The Government’s terms of reference set late last year were simply too broad. However, a better man could have risen above this and shown some vision.
But David Murray, the chief executive of the Commonwealth Bank from 1992 to 2005, was no Stan Wallis, nor Keith Campbell, nor Thomas Napier, each of which made meaningful contributions to Australia’s development with their respective inquiries last century.
In many respects, the challenges facing Murray were similar to those facing Sir Thomas Napier’s royal commission into banking and the monetary system in 1935. The Labor Opposition of the day was gathering momentum with its call to nationalize the banks, which it blamed for much of the effects of the Great Depression. The Commonwealth Bank, then doubling as Reserve Bank, had no independence from the United Australia Party government of Joe Lyons. Most of Napier’s 30 recommendations, after examination of 200 witnesses, were adopted over the following 20 years, by both Labor and conservative governments. One of his triumphs was to gain the support of both Lyons and Ben Chifley, who was also a committee member on the inquiry.
Napier’s times called for more regulation, but not so much as to stifle the young nation’s post-depression and post-war development. What of Murray’s times? Australia and the rest of the world has increased regulation since the GFC and at least attempted to make the superannuation and financial advice industries better. Will the three new bodies proposed by Murray to oversee the industry(ies) make much of a difference?
Increasing the capital requirements of the banks is certainly going to improve depositor security, perhaps at shareholders’ expense, and ensuring that super funds (read SMSFs) don’t externally leverage property or equities investments will reduce risks there, and better transparency in the allegiances of advice groups can only be good. But is this all we’re getting?
The institutional investment world started to become disenchanted with David Murray not so much during his long tenure at Commonwealth Bank – where the culture for which some of its now-infamous planners was built – but at the Future Fund, where he was inaugural chair, from 2006-2012. He did two good things at the Future Fund: he hired Paul Costello as the inaugural chief executive and Mark Burgess as his successor. Otherwise, he just got in the road, with an unusually high level of interference and attempted micro-management.
Of the Inquiry’s 44 recommendations, the main ones impacting on super, outside the financial advice arena, are:
> The FSI recommended superannuation funds be forced to tender for the right to manage hundreds of billions of dollars in default savings.
> Self-managed superannuation funds should be banned from borrowing to buy assets such as property and shares.
> Super fund boards should be forced to appoint a majority of independent directors.
> The FSI recommended Trustees subject to the same penalties for misconduct as directors of managed investment schemes.
> The objectives should be enshrined in legislation.
> The FSI recommended super fund trustees to pre-select a comprehensive income product for members’ retirement.