The erosion of public trust in banks reflects a wider decline in sentiment towards large institutions, which will take a long time to rectify, National Australia Bank chairman Ken Henry says.
After the banking regulator this week acknowledged the community’s trust in banks had suffered after a series of scandals, Dr Henry said he understood why people felt this way about banks, but argued the issue went beyond the financial sector.
“You know it’s not just banks. Actually on comparisons across industries, banks are relatively well trusted, believe it or not, compared with entities operating in other sectors,” Dr Henry said at a Trans-Tasman Business Circle lunch in Melbourne.
“If you think about the great institutions that guide the development of economies and guide the development of society, look at the other great institutions, like the political institutions, and look at how much trust there is in them.”
Dr Henry, a former treasury secretary, said more “certainly” needed to be done to address the erosion of trust in the financial system, but it would be a slow process.
“There is a lack of trust in institutions, and there is a large number of reasons for this, and they’re very complex,” he said. “It’s going to take a long time … for the trust in institutions to be rebuilt.”
Mistrust of banks has been thrown into the spotlight by the money-laundering compliance scandal engulfing Commonwealth Bank in recent weeks. The prudential regulator this week launched a powerful inquiry into the bank on the basis that public confidence in the financial system had declined in recent years.
Dr Henry was speaking alongside NAB’s chief executive Andrew Thorburn, who was asked if NAB’s top managers could be sure about what was happening on the front lines of the bank, and therefore rule out that it might be caught out like CBA.
Mr Thorburn said he could not rule out being caught out by similar problems, but it was vital that banks and their leaders had open communication with their staff, including encouraging whistleblowers to speak up. When mistakes were made, he said the senior managers of banks needed to “own it”.
In a wide-ranging discussion, Mr Thorburn also predicted the Australian economy would face “profound” change in coming years from technological changes, including the rise of automation such as driverless vehicles.
He predicted a wave of job losses in some industries over the next five to 10 years, but said the issue was not being discussed enough because “people don’t want to talk about that”.
“There’s going to be, I think, very significant job displacement from certain industries and certain professions, and certain types of jobs in the next five to 10 years in Australia; I think it’s going to be profound,” Mr Thorburn said.
Speaking on bank culture, Dr Henry said large banks needed to acknowledge the big impact they had on people’s lives, and take responsibility for bad news, as well as credit for good outcomes.
“When there’s bad news to deal with, we have to take ownership of that as well. That’s a fundamental ingredient of leadership – leaders do not point the finger,” he said.
The Australian Bankers Association this week also conceded there was plenty of room for improvement in public trust in banks.
A survey by the lobby group found 31 per cent of respondents trusted the banking industry as a whole, and 53 per cent had trust in their main bank.
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