If elected in May, Labor’s proposed $640 million banking fairness fund could award victims of financial misconduct as much as $2 million in compensation.
The fund, announced on Monday, will pay for the new financial compensation scheme proposed by Labor and that will be run by an independent board with the Australian Financial Complaints Authority (AFCA).
“You could get $1 million on compensation. You could also then get $1 million for emotional and other kinds of damage that have been done to you,” Your Money chief business reporter Leo Shanahan told TICKY.
But it’s not just the amounts involved that are unprecedented, with Labor proposing to open the scheme up to incidents as far back as January 2008.
“These could be cases that could be revisited, that the court has already heard, that the ombudsman has already heard. You could return to this new AFCA body [with those],” Shanahan explained.
Under the proposal, it would be financial institutions themselves that would directly foot the bill, with $160 million to be collected annually via levies on major financial institutions for four years.
“You need a scheme like this because people are crying out for it and really it’s going to stop a whole bunch of other litigation,” Shanahan said.
While a $2 million cap on individual compensation cases may be seen as generous, the amounts involved are ultimately small change for the banks, according to banking analyst David Ellis from research house Morningstar.
“If you look at the combined profits of the four major banks, it’s [around] $30 billion per year after tax. Even if they contribute the majority of this $160 million per year, it’s peanuts,” Ellis said.
“Looking at it from bank shareholders’ or investors’ point of view, it’s insignificant.”
That will be charged on top of the pre-existing, and more significant, 0.6 per cent bank levy, introduced by the Coalition government in 2017.
However, whereas the bank levy was used to repair the budget, Labor’s banking fund will be used directly for remediation.
While there are obvious benefits of the fund, there are concerns that if “bank bashing” becomes a successful political strategy, the banks might be hit too hard in the lead up to a May federal election.
“It’s never enough as far as Labor is concerned. For them, there’s no political downside but the risk is overreach and unintended [consequences],” Shanahan said.
“If the Australian economy goes into a recession…unemployment is going to go up, house prices are likely to fall much more than they have and at the end of the day, the government of the day will be blamed for it,” he said.
Watch the full discussion above.