The Australia Institute made this submission to the Senate Economics Legislation Committee’s inquiry into consumer protection in the banking, insurance and financial sector. Our main concern in this submission is to look at the deeper issues and ask what are the forces that drive ‘bad behaviour’ in the finance and insurance sectors. We start with some general and theoretical considerations following the views of eminent Professor of Finance at Harvard University and President of the American Finance Association, Luigi Zingales. This discussion provides a useful framework for considering the Australian debate and the abuses that have been highlighted in the Australian debate.

Our aim in this submission mainly it to give a theoretical perspective that can form something of a framework in which to view the many and varied experiences that the committee is likely to confront in this inquiry. The Australian discussion has dwelled on particular cases. When that occurs it is always possible to dismiss those anecdotes as one-offs caused by rogue staff and so on. Australian academics who specialise in finance economics have not been of much assistance. We begin our submission with an outline of the views of Luigi Zingales.