Widespread fraud in banking system, says Senate submission

by John Maguire26 Apr 2016
The banking system is being blighted by fraud as banks manipulate numbers on loan applications in order to make borrowers appear more credit-worthy than they actually are, says a submission to a Senate enquiry into white collar crime.

Economists Lindsay David and Philip Soos say that the fudged numbers, along with a lowering in lending standards, has led to a massive housing bubble with consequences for the entire financial system.

“The banks have trashed their lending standards over a prolonged period of time with significant evidence of banks massaging people's incomes in their loan application forms to make them look a lot more creditworthy than what they really are, which is essentially fraud,” David, of LF Economics, told the ABC.  

The reason banks would do this, says David, is to remain competitive, as well as increase profitability.

"The safer your mortgage book looks, the lower it costs you to do business - simple as that. If you show that your borrowers are very credit-worthy then you are going to get cheaper funding costs, and that's a win-win for the bank - until the whole system breaks down, obviously."

It is argued that the false numbers will eventually be exposed, with the consequence being a loss of confidence in international markets that will undermine Australian banks’ access to the offshore funds they require to maintain lending.

Commenting on the report, Jeff Morris, the whistleblower who was responsible for exposing the financial planning scandal at the Commonwealth Bank, echoed its sentiments, saying, “You've got [mortgage] brokers and lenders, who are remunerated on the number of loans they write, simply massaging the figures to put it through the computer system, and then it spits out an approval.”

The submission to the Senate enquiry on white collar crime is released this week.



  • by Country Broker 26/04/2016 9:23:18 AM

    This article is very hard to understand , as a broker , I have found a tightening in Credit appraisal standards, by all lenders . It may be the banks are looking at third party deals carefully and dropping the standards on their internally sourced deals , even that would be hard to understand.

    This submission written by consultants seems to be full of conjecture , hopefully the inquiry can see straight through this submission as self serving and just wrong

  • by Camberwell Broker 26/04/2016 9:32:56 AM

    "massage the numbers..... computer spits out an approval..." Do these "expert whistleblowers" not realise we have to verify everything and are audited annually on our files. I cannot speak for the direct lending staff in banks however every mortgage broker and support staff I know and have trained is fully aware to document and verify all data before actually completing the submission. It's all to do with my ethics and a little piece of legislation called the NCCP!

  • by OzBoy 26/04/2016 9:45:50 AM

    Who and who from where said what!? Not really sure how much attention (apart from some media) that this submission will get. While I have the utmost respect for Mr Morris not all lenders rely on a computer system to "spit out an approval". Funny how there is no actual details, cases quoted or examples of these actions undertaken by the lenders. So all in all MEH!