This is a key take-away from the Hayne Commission’s final report on the banking sector, which is damning in its assessment of the moral failings of bank executives and board directors. 

Hayne is unapologetic in asserting that more government regulation is not the answer to these moral failings. Of course, the government can outlaw certain practices, but it can’t legislate a moral culture into existence.

To effect lasting change, it is not enough to take a legalistic view of what is right and wrong. Otherwise, the banks can always find new, legal ways to fleece their customers or treat them badly —  and hide behind the curtain of technical legality when their behaviour is questioned.

While the law can forbid certain practices, it can’t instil a sense of moral duty in the men and women employed by the banks.

And this goes to the heart of the problem: banking “culture” — a word referenced nearly 300 times in Hayne’s report. Good culture is not just about following the letter of the law; it is about basic standards of behaviour toward customers. 

During the Commission’s hearings last year, we heard of “cultural” failures by the banks again and again. Some of the most emotionally hard-hitting examples involved tone-deaf behaviour towards farmers under severe financial stress — where banks acted legally but failed to show farmers basic empathy or consideration. Of course, this is not to say that banks shouldn’t enforce the terms of a loan. It is simply about how they treat their customers in the process.  

And these cases have also shone a light on the worrying disconnect between banks’ behaviour and community expectations. For many of us — especially older Australians — banks have traditionally represented trust, professionalism and customer service. 

After all, most of us trust banks to look after our life savings and provide us with basic financial services. But taking out a home loan or small business loan is not like buying a pair of shoes. These are life-altering decisions with considerable risk involved. 

Once you obtain a mortgage or a business loan, you are committed to the terms of the loan, even if you lose your income or your business fails to turn a profit. Obviously, there is an important element of trust when we enter into such contracts with our banks.     

However, as the Hayne Commission has highlighted, moving from a customer-based culture to a sales-driven culture in financial services has undermined that trust. And this is part of the problem. 

Australian banks have become more focused on sales; that is, selling mortgages, credit cards and financial services, as well as branching out into superannuation and insurance products.

But while there is nothing wrong in having sales targets, the banks were perhaps naïve in underestimating how this strategy would affect customer trust.  

To rebuild that trust with customers, banks need to take responsibility for overhauling their own culture. 

To this end, Hayne wants the banks to take a deep, hard look at their internal cultures, as well as voluntarily adopt better practices in dealing with customers — for example, offering more debt mediation to farmers and calling in administrators only as a last resort. 

Of course, other actions are also important for re-building public trust; for example: remediation for serious wrongdoing and compensation for customers. 

For some customers who have been poorly treated, even a straightforward apology from their bank would help. Some banks have also started to overhaul their performance-based pay structures – with less emphasis on sales-based bonuses and more on achieving customer satisfaction. 

Clearly, the banks have a serious job on their hands going forward; but Hayne was right not to call for a legislative attempt to fix their culture. Culture can’t be imposed by government, but must be built from inside an organisation. 

Nevertheless, it could take years to see whether cultural change will repair the banks’ tattered reputations. But clearly, the solutions will be less about governments imposing more rules — and more about bank executives stepping up to show some moral backbone. 

Eugenie Joseph is a Senior Policy Analyst at the Centre for Independent Studies.