Investment
Bank greed and latent risks
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Fish apparently rot from the head down. The chief executives of Australia's big four banks have helped themselves to monster pay rises over the past 20 years. Bank staff were financially motivated to sell more products to help meet their performance targets.

The Royal Commission into Misconduct into the Banking Superannuation and Financial Services Industry (Royal Commission) interim report, released in September 2018, suggests these performance-based increases fostered cultures where greed trumped controls in treating customers fairly.

We fear controls may have also lost to incentives when making lending decisions as well. The quandary is poor lending cultures are usually exposed only when conditions deteriorate. For most of the past twenty years, borrowing conditions were favourable.

Should mortgage rates keep rising, credit standards continue to tighten, and property prices keep falling though, we may find out if our concerns are well-founded in the next year or two.

The greed starts from the top

Over the past 20 years, the chief executives of the big four banks in Australia have given themselves double the pay rise of the average Australian worker. Now they earn around 80 times the average employee as opposed to 40 times 20 years ago. They also earn around 50 times the average bank salary as opposed to 30 times two decades previously.

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