The most surprising thing about the Royal Commission into banking is the amount of surprise people feel.  What did they expect?

In 1983, a very old and respectable trustee company – Trustees Executors and Agency – failed and went into liquidation.  A very un-trustee like general manager had flirted with property development and short term money.  This collapse was a huge shock.  The Victorian Premier wanted the directors to surrender their passports.  (A few years later there were worse crashes.  Do you recall Tricontinental and Pyramid?)  ANZ acquired the business of the trustee by act of parliament.  One of the older trustee managers was heard to groan that bankers ‘don’t understand trusts – they only know debits and credits.’

There is a world of difference.  If you deposit money with a bank, it becomes theirs, and they have to pay you back an equivalent amount later.  But if you ask them to hold your BHP shares on trust for you, they become subject to much more onerous obligations and you get much more generous remedies.  In the first case, they get your money; in the second, the shares remain yours.  The relationship between creditor and debtor is very different to that between a trustee and beneficiary.  A trustee may have to account to a beneficiary for a profit taken innocently in the transaction.

Some think that the law has nothing to do with morals or ethics.  They are dead wrong.  So much of our law turns on whether people have been careful, honest, or conscientious.  If someone puts their confidence in me, the law says that I have to act toward that person in good faith, and take care that I do not have an interest or become subject to a duty that conflicts with my obligation to honour the confidence put in me.  These duties are called fiduciary.  If I get sued, the court might even inquire whether my opponent’s hands are clean.  So, moral or ethical issues abound in the law.

The banks probably educate their staff about bankers’ obligations of secrecy or confidentiality (which sit uncomfortably with the aversion of bankers to being called fiduciaries).  But plain and simple moral obligations tend to get forgotten in the blizzard of government intervention. They do however remain, and these obligations that are called equitable tend to be sternly enforced by the courts.

What education do the banks give their staff who act as trustees?  What do they get taught about that mystical word ‘fiduciary’?

That is one fault line on show.  Another relates to management.  The law says that ‘the business of a company is to be managed by or under the direction of the directors.’  At the risk of sounding like the late Bud Tingwell in The Castle, what do those words mean?

Very experienced directors, managers, and lawyers answer this question very differently.  The directors of a bank are not there to act as tellers, but how much direction do they have to give to managing the bank’s business?  Those words are elastic.  Does it matter that the law describes directors’ duties as fiduciary?  What are the directors of banks told about their obligations under the law?

Can you recall a time when we actually dealt with bank managers?  I grew up living beside one.  Alf had come up the hard way.  Alf could be rough and tough, but two things were certain.  Dishonesty never entered his head; and if he thought a would-be borrower was being stupid or greedy, Alf would let them have it – right down the bloody front.

Alf was not into equitable or fiduciary obligations.  He just did his job by the bank and its customers.  Both sides were content, in a way that we don’t see much of now.  If, as I suspect, there is doubt about the management of banks at the top, there is at least as much doubt about how they manage you and me – their customers.