The RBA currently employs just over 1000 people, and has an approximate staff turnover of about maybe 10% of that per year. About 90% of those are located in Sydney.
I think the thing you need to remember is that at its very core there is a significant APS style culture which is part of the genetics of the RBA. Its people are employed under the RBA Act, in a similar way in which CSIRO people are employed under their own act – not APS act, but relatively close conceptually. It is at once the most exclusive economist employing organisation, financial markets participant Australia, yet somehow free from the need to ‘sell’ anything to clients to make its buck. Its ‘clients’ treat it with the utmost respect – a respect quantifiable in the premium time with the RBA adds to the salary packages of people who later head to Macquarie, the retail banks, or more often JP Morgan, the squid, etc. But befitting an organisation where the cultural ethos is one of ‘being in the organisation’ in a way that maybe only Jesuits and people familiar with more devout religious practices would understand, for many people there it would be paramount to them that they are employed by the RBA. In many ways the organisation itself would be sacrosanct in their minds – they would tell you (should you ask) that what they do is of vital importance to the people of Australia, who generally don’t understand what they do or the circumstances in which they do it. In this view of their organisation they would have some similarity to more prestigious government related science (the divisions of the CSIRO, DSTO, or the Antarctic Division) the security world (parts of Defence, ASIO, ASIS) or the world of ‘Policy’ rather than practice (Treasury, DFAT, and a load of similar state based entities).
The one thing all these types of organisations have in common is an external façade of pre-eminence, a particular reticence to be openly accountable for anything (to the public, political masters, participants in whatever market or field of endeavour they are in), and a disturbingly prevalent view that their people are important for what they know rather than what they do. That often comes with a pronounced tribalism within the organisation – various directorates, branches and divisions replicating the organisational ethos at a lower level.
In the late 1990s, having had some experience in dealing with the types of issues these types of organisations can throw up, I spent a couple of days while in Sydney chatting with people from the RBA who told me more than enough to know that what I have written above is broadly accurate for the RBA of that time (and may well still be). At that time one of the major issues facing all of these organisations (and rightly so in my opinion) was the need to be seen to a fairly new Liberal government that they were accountable, and, in accordance with the political will of the day, to show that they could corporatize, outsource, or somehow embrace the corporate world in its approaches. This lead to some interesting phenomena – where what were APS or para APS like organisations started ‘engaging with risk’ or ‘cultivating entrepreneurialism’ or whatever the mantra was in the organisation. Often what you found was that a batch of indigenous employees from the organisation had been slapped under someone from the private sector (or someone taking a lot of private sector influence, usually from a load of consultants brought in) who sometimes didn’t understand public sector processes and particularly public sector accountability requirements.
If you want to see some dysfunction related to this look at Defence acquisition processes, or property development/disposal processes, the IT contracting processes of almost any organisation, the commercialisation of a number of science related projects, the contractor or consultancy award process in almost any organisation – at that time, and possibly still so. I tend to see what we know of what happened with the RBA, NPA and Securrency in this light. They certainly weren’t Robinson Crusoe in getting their fingers burned by something commercial. You could bet your bottom dollar there was someone somewhere banging on about going the extra yard to make a sale, presumably with someone with some sort of ‘local’ experience (no matter how specious this could be) telling them this is the way business was done here and that if they wanted the sale then this is what they needed to do. In all, I suspect you may find it is small fry compared to what British or US Defence contractors get up to, to make their sales. Cock ups happen – never more so than when policy types from one part of the world start trying to make sales in another.
But that brings us back to the nature of the organisation. This type of organisation has a few distinctive traits when it comes to dealing with bad news. They know how to deal with the political process very well, and they know how to deal with the public sector auditory processes well. Traditionally this revolves around the compartmentalisation of information and – particularly in that era – a nicely delegated responsibility which often works to ensure that those at executive levels don’t know anything which may come back to haunt them, and that if they do then they certainly can’t be proven to know (or have known). There has been a long time since the events described here, certainly long enough for key individuals to have been moved on to the private sector or elsewhere in academia or the public sphere, or even just to have been redunded out. In the same way you could be fairly sure that any files relating to the events have been thoroughly searched – meaning incriminating pieces of paper have been well buried or simply don’t exist. The other thing to bear in mind is that the RBA can quite plausibly point to having offloaded the cankers in the past (particularly seeing as they don’t relate to what the RBA would see as its core functions), and that there will be an increasing number of people in the organisation who can quite legitimately say they know nothing of events.
Absolutely nobody should assume that decisions made in this type of environment are either 100% perfect from some sort of technical sense, in any way pure, or haven’t been critiqued from within the organisation itself (and that there will be people within the organisation, if not whole sections, who know about and disagree) . The RBA presents a an austere front, long on unquestioned gravitas and demanding of esteem, and as HnH notes it is certainly looking like something of a blemish on that façade has occurred. But it is also true I think that there will be those in the RBA who will think they have played it out about as well as it could be played out and that if they keep themselves disciplined then it will blow over, and that if anything does happen it will not occur in such a way as to trouble the core operations of the RBA.
The years 2007-2008 were not the Reserve Bank of Australia’s finest.
It raised interest rates four times after the start of the worst credit crisis in 70 years and ignored advice in late 2007 from the company secretary of a subsidiary that the company was paying bribes.
Five years later the bank is paying the price of decisions made then. On interest rates it has been playing catch-up ever since and on corporate governance it must surely be facing a formal inquiry into what went on at Note Printing Australia Pty Ltd and Securency International.
Yesterday’s decision to leave rates on hold was undoubtedly correct in the circumstances, but the board will be hoping that the US Republican Party does not go further than a brief Government shutdown and force a default on US Treasury debt by not raising the debt ceiling.
That would potentially cause an even greater financial storm than the one in 2008, into which Australia sailed with the cash rate spinnaker flying at 7.25 per cent.
Global credit markets began shutting down in June 2007, but after that the RBA raised rates in August, November, February and March by a total of 1 per cent.
When the inevitable culmination of the crisis happened in September 2008, the RBA was forced to scramble rates down by a massive 4.25 per cent between September 2008 and April 2009. It then had to scramble them back up again in late 2009-2010 after China came back to life, commodity markets boomed again and the property market started to get out of control.
Exactly a year later it was cutting again, not so frantically this time, but to a record low. Once again the property markets are threatening to get out of control, this time with the additional propellant of self-managed super funds. It’s clearly not yet a bubble, but the RBA is clearly worried.
And if the US defaults on its debt because the GOP-smacking Rabid Republicans decide to take the debt ceiling hostage over Obamacare as well as the budget, then it will have to cut even more, which will fuel an even greater property boom in Australia. Investors would be doubly keen to get out of low-yielding term deposits and shaky shares.
So 2014 could be a most challenging year for the RBA and its governor Glenn Stevens; he might end up wishing he hadn’t asked for, and got, a three-year extension on his term in April this year.
It is hard to see how the Abbott Government can avoid commissioning some sort of inquiry into what went on at Note Printing Australia and Securency, what the RBA management knew and when they knew it, and why the Australian Securities and Investments Commission didn’t investigate when the matters were referred to it.
This week’s on-camera interviews on the ABC’s Four Corners programme with the former company secretary of NPA, Brian Hood, and a former senior sales manager at Securency, James Shelton have dramatically clarified the issues. These two men have become devastating whistle-blowers against the RBA management and their accusations must be answered in detail, especially the one that Glenn Stevens misled, no doubt inadvertently, a Parliamentary Committee about what the RBA knew of the scandal in 2007-08.
The whole thing is doubly disturbing because it concerns the institution responsible for Australia’s monetary policy, and therefore, in effect, with managing the economy.
It was the elephant in yesterday’s monetary policy statement.
The long-simmering scandal that has seen the Australian Federal Police lay bribery charges against a wholly-owned Reserve Bank of Australia subsidiary, a second business established by the RBA, and international agents working for them, could yet claim scalps inside the highly regarded central bank.
Three important questions remain outstanding. First, has the RBA misled Parliament and the federal Treasury about what it really knew in 2007, as the key whistle-blower claimed on ABC Four Corners on Monday night?
Second, should the RBA have prudently reported to police back in 2007, extremely serious bribery allegations made by the company secretary of one of its wholly-owned entities? And, finally, on what basis has the Australian Securities and Investments Commission concluded that the directors of companies charged with bribery have not breached the Corporations Act?
In 2011 the AFP charged a key wholly-owned RBA subsidiary, Note Printing Australia, and former NPA employees, with paying bribes in foreign countries to advance NPA’s business. NPA has carriage for printing Australia’s banknotes and is overseen by an RBA-appointed board.
The AFP have also laid bribery charges against a business established and, until recently, half-owned, by the RBA, Securency International. Securency supplies NPA with the polymer substrate on which banknotes are printed.
On Monday it was revealed that in 1998 NPA was also involved in allegedly illegal efforts to win note-printing business in Iraq through Saddam Hussein’s brother-in-law in violation of United Nations sanctions.
The RBA’s governor, Glenn Stevens, told the then treasurer, Wayne Swan, in a letter in 2010, and Parliament, in written testimony in 2012, that the RBA was unaware of the bribery allegations against Securency until The Age published its original story in May, 2009.
This has been a critical leg of the RBA’s defence: it has steadfastly sought to distinguish between what it knew about the NPA bribery allegations in 2007, which it chose not report to the police, and what it knew about the same problems inside NPA’s sister company, Securency.
In his June, 2010, letter to the Treasurer, Mr Stevens said neither the board of Securency nor the Reserve Bank was aware of these allegations [against Securency] until [The Age published them in May, 2009].”
“The allegations were completely unexpected, given that the company had strong policies prohibiting the payment of bribes, including by the agents,” Mr Stevens explained in his letter to the Treasurer.
He continued to say that “neither of the former employees who appear to be among the sources used by The Age had made their concerns known to the board of Securency or to the Bank”.
“Had they done so, given the seriousness of the issues, the bank, as in the NPA case, would have carried out investigations . . . immediately.”
Their true crime is that they did not stand up to the Howard government who demanded privatization of their businesses.
Perhaps they just promised what they could not possibly deliver for the sole purpose of pleasing their superiors (and getting promotions / pay rises in return).
I am assuming here that the board of the two RBA subsidiaries did what they were alleged to do to meet some sort of annual sales target, so I could be wrong (but then how else can you explain all this?). But if that was indeed the case then what can you expect? The market for bank notes must be narrow and highly specialized so they would not have had much choice. In short, it looks to me that these subsidiaries were set up for failure by none other than the taxpayers.
If we do not go to the bottom of this now, it will be far worse “next time”. If you do not know, the CSIRO has a revenue target. So does ANSTO. Does anyone really believe that nothing can go wrong with anything less than knowing the full story?
I am not sure the integrity of anyone at the RBA is in doubt – dodging questions about a plastic cash business screw up notwithstanding.
The main problem is that the RBA is exercising too much power over the economy for an unelected ‘independent’ group of insiders and is a wall of fog when it comes to explaining what drives its decisions.
That is what is undermining its credibility.
The Federal Government should be responsible for managing the economy and their attempts to fob that responsibility off on the RBA must be rejected.
The point of RBA independence (at a time when inflation was slowly receding as a problem) was to ensure that if govt went nuts on spending and overheated the economy and generated inflation the RBA could cool things down with interest rates.
The whole point of the RBA was to stop govts using inflation as a tool of policy !
Now we have assorted people claiming the RBA should ‘look through’ inflation.
The idea that when inflation is low the RBA should be driving up economic activity with debt driven by low interest rates is absurd. Any decision to stimulate an economy, should not be taken lightly, and is the responsibility of the government and they have reform and fiscal policy powers in abundance to do it.
Stimulating an economy is inherently political and is no job for the RBA.
The lack of legitimacy for the RBA driving the economy with debt is why they resort to fog and oblique ramblings.
They are trying to conceal what they are doing and trying to avoid any way of objectively assessing the decisions they are making.
It is simply outrageous that an unelected body is:
1. Setting bait rates to encourage risky borrowing decisions
2. Setting bait rates to drive people away from their preferred risk preferences
3. Driving up debt levels in the household sector.
4. Driving up asset prices in an environment of market failure in the market for those assets – housing supply.
That speech by Luci Ellis – The platypus speech – sums up the arrogance and the failure of the RBA.
According to that speech there are NO measures to assess how the RBA use debt (via interest rates) to drive the economy and how we might know when they are making mistakes.
The policy of driving/stimulating the economy with debt is increasing the instability of the financial system.
The RBA says – Just trust us.
Ahhhh – I see now, that is the very point you are making !
The sooner there is a full review of the role of the RBA the better.
The initial foray into Iraq – by RBA employed individuals according to 4 Corners – would mean that prima facie UN Sanctions have been broken. The presence of RBA employees in Iraq would have a delegated responsibility leading to the then Governor (and subsequently to the political process). Should be looked at under RBA Act.
The Payments to agents – as reported by 4 Corners report – suggests a Corporations Act breach by NPA and/or Securency. The extent to which the RBA would be pinged over same actions would depend to some extent on the articles of incorporation of NPA and Securency, but seeing as it is wholly owned subsidiary things arent looking good for RBA.
What should be looked at is – Who set up network of agents? Who authorised payments to them and under what basis? Who monitored whatever performance under whatever contract?
This stuff is largely all in distant past and could be weathered by RBA.
More disturbing is that in 2009 Stevens and Battalino fronted senate and told them they know nothing, and had been told nothing, when there appeared to be 2 rather credible witnesses suggesting they (one way or another had) had. It would appear for mine that the redundancy handed out to the guy who was the company secretary ……..
‘Your job shrinks before your eyes, you are further out on a limb, and then you are made redundant’ ……– the standard public sector manner of getting rid of unpleasantry.
This reflects an RBA which lacked composure and resorted to a standard public service manner of getting rid of the discomfort. The claimed message from Battalino at the guys farewell just reeks of the same – no organisational composure in the face of a serious probity claim. They have realised the guy had twigged to something, and their first thought was to offload him. They would not have got Freehills to investigate his claims so much as got Freehills to prepare a plausible defence for them against claims they had probity issues.
Even that was some time ago (but should be looked at). It reflect an organisation in which risk/HR/audit/compliance functions were either incompetent (almost certainly not the case) or not being listened to by those up the tree.
The bigger issue now in 2013 is that the Federal Police have handed over a serious claim brought to them by a direct witness to ASIC and ASIC have initially baulked at pursuing that claim.
There will be something on file at the AFP saying this is why it is a serious issue and noting what potential legal transgressions have taken place. There should be a corresponding file at ASIC addressing the AFP claims as well as considering what has been brought to them (by AFP) stacks up against laws they are the guardians of.
If that file at ASIC is incomplete or not in existence then there is a major issue for Australian corporations legal process. The decision not to initially pursue (even now that they are – as HnH says it is pathetic) must have been made on some basis and the person making that decision must be accountable for it.
From here I reckon the issue goes beyond the RBA to ASIC – unless someone from RBA can be proven to have influenced the ASIC decision – and if anyone can then this gets uglier by the second.
But ultimately there should be an investigation. I would imagine that applicants for senior positions in RBA, NPA, Securency, and (more disturbingly for mine) ASIC should start polishing.
The Tory Government can establish right here and now how they address probity issues – wont that be nice.
WTF , 1000 employees, just sack the lot of them, another complete waste of taxpayer dollars.
We dont need some independant clowns to dictate interest rates to us, the banks do what needs to be done full stop. The banks dont move in line with what these morons say, they move in accordance to the situation like they always did before we had these dheads.
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