I don't think anyone has written more about the RBA's governance challenges in recent years than me. When things are going well, nobody has concerns about the RBA. But, as I have argued for ages, we should not, as prudent risk managers, focus on the base-case where everything is fine and dandy. We need to consider the tails--what could go wrong. So, when there is demonstrable evidence that RBA staff are leaking confidential information to key journalists about the executive's interest rate recommendations, who takes action? When the RBA staff decide that they want to unilaterally expand their monetary policy mandate to very controversially (in the Governor's words) allow the central bank to use its blunt interest rate instrument to tame excessive asset price and credit growth (ie, not inflation)--something that was explicitly opposed by the likes of Guy Debelle and David Gruen--what sound governance processes were put in place to determine whether this change is consistent with the RBA's formal mandate? Along these same lines, Brian Toohey has a very good article in the AFR critiquing the RBA's management of a subsidiary company, and questioning why there has never been any ASIC inquiry into the conduct of its directors. Smacks of poor governance to me:
"It is not the job of the police to investigate whether board members fail in their duty of care. That is a job for the Australian Securities and Investments Commission (ASIC) or a judicial inquiry. Police focus on criminal offences. The distinction is pertinent to how the Reserve Bank of Australia responded to allegations of bribery involving two subsidiary companies.
The RBA is not merely another corporate entity operating in the rough and tumble world of international business. It is a statutory authority responsible for important regulatory issues such as financial system stability, as well as the conduct of monetary policy. The RBA governor, Glenn Stevens, chairs the Council of Financial Regulators. ASIC, the Australian Prudential Regulation Authority (APRA) and Treasury are the other members.
On May 23, 2009, two Age journalists, Nick McKenzie and Richard Baker, reported that Securency International, a company half-owned by the RBA, allegedly funnelled multimillion-dollar payments to shady foreign middlemen to help win contracts to supply overseas central banks with polymer substrate for banknotes. Its chairman, RBA assistant governor Bob Rankin, referred the matter to the Australian Federal Police (AFP). But neither Rankin nor Stevens asked ASIC to examine whether any directors of Securency or the RBA might have failed to fulfil their duty of care to uphold anti-corruption laws as part of an international effort to remove obstacles to reform in developing countries."
