The Reserve Bank has rounded on Australian banks and condemned them for their poor behaviour in recent times. The forthright criticisms, contained in yesterday’s first Financial Stability Report of the year, are unprecedented. They tell us the poor monitoring conducted by some of the RBA’s employees of banks such as Macquarie, Commonwealth Bank, ANZ and NAB has upset the most powerful organisation in the financial markets.
These banks have featured in scandals involving insider trading (NAB), dodgy investment advice (Macquarie, CommBank, and NAB) and overcharging for imposts such as late fees (a number of class actions, with ANZ head of queue). The attitude and performance of the banks has not escaped the notice of federal Parliament, or the Australian Securities and Investments Commission (finally).
Now, the Reserve Bank has weighed in with perhaps the most pointed comments on bank culture the central bank has levied in recent years. In fact, the central bank lumps the behaviour of some of our banks in with the rorts and other fiddles by some of the world’s biggest banks (Goldman Sachs, Barclays, Deutsche Bank, Soc Gen, Citibank, Bank America, and RBS). These have included fiddling the fixing of foreign exchange dealings, interest-rate settings, gold-settlement prices, selling dodgy financial products (in Britain, with NAB front and centre) and the great subprime rorts in the United States. Fines in the hundreds of billions of dollars have been levied against these banks (not the Australian banks).
It’s a roll call of bad behaviour, weak management, non-existent controls and the wrong culture. Said the RBA in its generally upbeat view of the healthy Australian financial system:
“*Another area of focus for Australian banks is their conduct and culture. These issues are receiving greater attention among market commentators and the global regulatory community, following a number of conduct-related problems that have resulted in substantial legal expenses for certain global banks.
“Australian banks are required to maintain a sound operational risk framework that ensures the proper functioning and behaviour of systems, processes and people; complex and diversified banks should have a more robust framework in place.
“Banks are also expected to understand their ‘risk culture’, which can be thought of as the way the management of risk is viewed in practice across the institution.
“Conduct-related events in one area of a banking group may be a signal of broader governance, cultural and risk management deficiencies, and could give rise to entity-wide reputational risks.”
In other words, the RBA is warning our banks that the rorts and other issues mean they increasingly can’t be trusted on bigger issues, such as good lending practices, capital adequacy and management generally.
These comments were absent from previous stability reviews. The most senior financial regulator in the country has been stirred into warning the banks (obliquely, it must be said) that it is tired of the poor management and examples of weak culture. The question is, what’s next if things don’t improve?
Well, go back to the foreign-exchange-options trading scandal that enveloped NAB in 2004, cost close to $400 million, and resulted in management and board changes and criminal prosecutions. Management of NAB was put in the hands of APRA and the Reserve Bank for over a year.
And there was another warning to banks yesterday about the need for “behavioural adjustment” needed to tighten up loose mortgage lending: “Risks in housing and commercial property markets are rising in association with fast price growth in some cities, heightened investor activity and strong price competition among lenders,” the RBA said. After the recent investigation into lending practices, some banks “are likely to attract the attention of the regulators”.
The RBA must be really concerned.
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.