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TOPIC: Fiona Bennett's APRA in Katter's sights

Fiona Bennett's APRA in Katter's sights 1 month 2 weeks ago #4026

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Unless Mr Glenn Jones was evicted, Bennett's legal board might have trouble justifying its support for the characters around the sister in law of document rings like Tehan's clients ran. Using false stories to get information on politicians seems unethical for foreign officials far away from Canberra and Qld ... and Texas.


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Citizens Electoral Council of Australia
Media Release Friday, 31 August 2018

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Website: www.cecaust.com.au


APRA chairman misled Senate on mortgage fraud

There is a case to be made that Australia’s bank regulator has colluded with the banks to hide massive fraud in mortgage lending. The Australian Prudential Regulation Authority’s (APRA) collusion includes suppressing its own research into lowered lending standards, and misleading Parliament about its knowledge of illegal misconduct by banks in mortgage lending.

In a 1 March 2018 hearing of the Senate Economics Committee, Greens Senator Lee Rhiannon questioned APRA chairman Wayne Byres on his knowledge of mortgage control fraud. The hearing was 11 days before the start of the first round of hearings of the Financial Services Royal Commission, which the issue of mortgage control fraud would dominate. Perhaps unaware of how much the royal commission knew, Byres responded to Rhiannon’s questions with APRA’s trademark obfuscation and deflection. Documents subsequently released by the royal commission, however, show that Byres lied.

Rhiannon asked Byres, “In relation to your investigation into mortgage fraud, which APRA has not made public, has APRA found any evidence of illegal misconduct in the mortgage market by the major lenders?”

Byres ignored the point of the question and instead denied that APRA was looking into mortgage fraud. “I wouldn’t say what we’ve done is specifically a review of mortgage fraud”, he said, adding that they have looked “generally” at lending practices and controls. He then claimed that APRA had not found evidence of illegal misconduct.

With this reply, Byres misled the Senate. APRA was investigating mortgage fraud. The proof is revealed in documents made public by the royal commission on 23 March, which included reports to the major banks by accounting giant PricewaterhouseCoopers, of targeted reviews PwC had conducted in 2017 into the banks’ mortgage lending controls. As PwC’s reports made clear, APRA had ordered the reviews.

Targeted reviews

In PwC’s May 2017 report to Westpac entitled “APRA Targeted Review of data used in residential mortgage serviceability assessments”, PwC states explicitly in the Executive Summary that APRA had ordered the reviews due to concerns about mortgage control fraud. “On 12 October 2016, APRA issued a letter to the Bank and 4 other large banks requesting that they undertake a Review into the risks of potential misrepresentation of mortgage borrower financial information used in loan serviceability assessments”, PwC noted. “In its letter, APRA referenced assertions made by commentators that ‘fraud and manipulation of ADI residential mortgage origination practices are relatively commonplace’.” (Emphasis in original.)

This proves that APRA clearly ordered the banks to conduct targeted reviews of mortgage fraud. Yet the royal commission is unlikely to have had this evidence, had it been up to APRA. Later in her questioning, Lee Rhiannon asked Byres if APRA should be proactive in providing information to the royal commission, but Byres replied, “We’ll wait and see what the royal commission asks.” His extraordinary excuse was he didn’t want to “swamp them with things that are not relevant to them”. Byres’ idea of what’s “not relevant” appears to have included PwC’s reports.

A few days before Byres’ testimony, Lindsay David of LF Economics had tipped off the royal commission about the targeted reviews. This was around two weeks before the royal commission’s first round of hearings, which were on mortgage lending. LF Economics specialises in forensic analysis of misconduct within the mortgage market, and has probed into the details of many of the numerous cases of mortgage fraud that the Banking and Finance Consumer Support Association’s (BFCSA) Denise Brailey, the leading expert on mortgage fraud in Australia, has exposed through her tireless advocacy for bank victims. (CEC Research Director Robert Barwick interviewed Denise Brailey for the 22 and 28 March 2018 episodes of the CEC Report, available on YouTube channel CEC Australia.)

According to David, LF Economics first became aware of the targeted reviews in mid-2017, but had been informed that they were “so unfavourable they would never see the light of day”, he recalled. At the time he was consulted by the royal commission staff, they were unaware of the existence of the targeted reviews—indicating that APRA had not revealed them. It was David’s tip-off that led the royal commission to request copies from the banks, and make them public on its website.

So why would Byres go out of his way to deflect the attention of the Senate committee away from the fact that APRA was looking into mortgage fraud? And why would APRA not share this with the royal commission? It goes to the collusive relationship APRA has with the big banks, which former ANZ director John Dahlsen denounced in the 21 August Australian Financial Review as “incestuous”. APRA is notoriously secretive, with the power to suppress information through strict secrecy restrictions. It has a track record of using its secrecy to cover up risks and fraud in the banking system. Due to its excessive secrecy, APRA is effectively unaccountable, which breeds the arrogance on display in committee hearings.

APRA is complicit in the banks’ reckless lending, which has created a dangerous housing and debt bubble that threatens the Australian economy. It allowed the banks to lower their lending standards in the early 2000s, to be able to massively expand their lending to homebuyers and investors who, like the US “sub-prime” borrowers whose defaults sparked the 2008 global financial crisis, couldn’t afford normal loans. In March 2007, APRA suppressed an explosive internal report which warned that the lowering of lending standards had led to the banks lending 3.5 times more credit for mortgages than would have been the case under the previous, higher standards. And APRA repeatedly lowered the so-called “risk-weighting” of mortgage loans to make them far more profitable than any other lending, and to fake the appearance that banks were raising their capital to the “unquestionably strong” levels of 14.5 per cent, whereas real bank capital stayed at less than six per cent.

In short, APRA incentivised the excessive mortgage lending that motivated the banks to resort to fraud. It’s a fair bet that Byres hoped to keep APRA’s awareness of the problem under wraps, to protect the illusion that it is a “sound” prudential regulator. He wasn’t banking on the royal commission process, however, which has destroyed this illusion and opened the possibility of fundamental reform of the banks and regulators.

Join the fight to break up the banks and reform APRA!

The mortgage fraud by the banks that APRA has covered up massively expanded Australia’s housing and debt bubble. Now the borrowers who couldn’t afford their mortgage in the first place are threatened by rising interest rates, which will trigger increasing defaults and ultimately crash the bubble—and the banks. The CEC’s Banking System Reform (Separation of Banks) Bill 2018, which Bob Katter MP introduced in Parliament on 25 June, will break up the banks, by separating the commercial banks with deposits from all other financial activities, and bring APRA under strict Parliamentary control. This will enable the government to implement measures that clean up retail banks used by the public in a way that stops them from crashing, and stops APRA from using its “bail-in” powers to steal our savings to prop them up.

Contact your MP today to demand they debate Bob Katter’s bill! The government wants to shelve it, so we must force them to debate it, which will force all MPs to either support it, or justify why they won’t—and in light of the revelations from the royal commission, which have led to many calls to break up the banks, that will be very hard.
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Fiona Bennett's APRA in Katter's sights 1 month 2 weeks ago #4027

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www.theguardian.com/australia-news/2018/...-duties-senator-says


Super trustees should face fines and jail for failing duties, senator says

Banking reform campaigner John Williams blames Labor and Greens for not supporting legislation, but urges PM to try again

Gareth Hutchens
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Wed 22 Aug 2018 07.28 AEST
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John Williams
John Williams: ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed.’ Photograph: Mick Tsikas/AAP

Nationals senator John Williams has urged the Turnbull government to push ahead with legislation that will see superannuation trustees face up to five years in prison for stealing workers’ super savings.

Williams, one of the earliest backers of the banking royal commission, told the Coalition partyroom on Tuesday that super trustees must face civil and criminal penalties of up to $420,000 and five years’ jail respectively for failing to act in the best interest of their members.

He said legislation introducing tougher penalties on super trustees that offer MySuper default products had stalled in the Senate last year because Labor and the Greens refused to support it, but the government ought to revisit it.

“I said to the party room, ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed’,” Williams said.
AMP to compensate super investors after fresh humiliation at royal commission
Read more

“I’m confident it will be brought on, and I’d expect it hopefully in the next couple of months, or sooner.”

The royal commission finished its interrogation of the super industry last week, revealing millions of Australians have been ripped off by their super funds with exorbitant fees and charges.

The reputation of institutions such as Commonwealth Bank and AMP took yet another battering, and the embattled wealth management giant AMP agreed to pay $5m to compensate almost 50,000 super fund members short-changed by their investments.
Advertisement

Williams has asked his Coalition colleagues to refocus their attention on penalties for super trustees who fail to act in the best interest of their members.

However, the Greens say the reason they opposed the legislation that Williams is now championing is because it was aimed squarely at MySuper default products which are dominated by “industry” super funds (which are often associated with unions).

They say the legislation did nothing to increase penalties on “retail” super funds, which are run by the major banks, where the billion-dollar scandals have occurred.

The Greens’ Treasury spokesman, Peter Whish-Wilson, told the Senate last year that the bill would increase trustee obligations and regulatory powers in the default super sector, but not the 83% of retail sector assets dominated by the big-bank-owned funds.

“The vast majority – nearly 83% – of bank-owned and other retail superannuation assets are held outside MySuper and will be excluded from the requirement,” he said.

“This is the case notwithstanding that such products, on average, underperform MySuper products, where the majority of industry super funds are held.

“The government still haven’t advanced any evidence that their proposals will improve returns for members. They’ve talked about risk management and improving governance, but at the end of the day the track record is clear: for the 10 years to 30 June 2017, SuperRatings data shows on average that industry super funds have outperformed bank-owned super funds by more than 2% a year.”

The Turnbull government accepts that last year’s legislation was aimed squarely at the MySuper regime, and that if the bill was reintroduced without amendments it would likely get defeated.

It will face pressure to remove the bill’s emphasis on MySuper products if it wants the Senate to pass the legislation.

Whish-Wilson told Guardian Australia that the Greens would not support any legislation that is part of an “ideological attack on industry super funds”.

“If the government wants to do serious reform of superannuation and bring a clean, non-ideological bill that doesn’t impose standards on industry funds that it won’t put on the banks, then we can talk,” he said.

“And while they are at it they can adopt the Greens policy of making the Australian Competition and Consumer Commission the conduct regulator of the superannuation sector, which is so plainly needed after APRA’s failures.”
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Fiona Bennett's APRA in Katter's sights 1 month 2 weeks ago #4028

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www.theguardian.com/australia-news/2018/...-duties-senator-says


Super trustees should face fines and jail for failing duties, senator says

Banking reform campaigner John Williams blames Labor and Greens for not supporting legislation, but urges PM to try again

Gareth Hutchens
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Wed 22 Aug 2018 07.28 AEST
Last modified on Wed 22 Aug 2018 09.55 AEST

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John Williams
John Williams: ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed.’ Photograph: Mick Tsikas/AAP

Nationals senator John Williams has urged the Turnbull government to push ahead with legislation that will see superannuation trustees face up to five years in prison for stealing workers’ super savings.

Williams, one of the earliest backers of the banking royal commission, told the Coalition partyroom on Tuesday that super trustees must face civil and criminal penalties of up to $420,000 and five years’ jail respectively for failing to act in the best interest of their members.

He said legislation introducing tougher penalties on super trustees that offer MySuper default products had stalled in the Senate last year because Labor and the Greens refused to support it, but the government ought to revisit it.

“I said to the party room, ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed’,” Williams said.
AMP to compensate super investors after fresh humiliation at royal commission
Read more

“I’m confident it will be brought on, and I’d expect it hopefully in the next couple of months, or sooner.”

The royal commission finished its interrogation of the super industry last week, revealing millions of Australians have been ripped off by their super funds with exorbitant fees and charges.

The reputation of institutions such as Commonwealth Bank and AMP took yet another battering, and the embattled wealth management giant AMP agreed to pay $5m to compensate almost 50,000 super fund members short-changed by their investments.
Advertisement

Williams has asked his Coalition colleagues to refocus their attention on penalties for super trustees who fail to act in the best interest of their members.

However, the Greens say the reason they opposed the legislation that Williams is now championing is because it was aimed squarely at MySuper default products which are dominated by “industry” super funds (which are often associated with unions).

They say the legislation did nothing to increase penalties on “retail” super funds, which are run by the major banks, where the billion-dollar scandals have occurred.

The Greens’ Treasury spokesman, Peter Whish-Wilson, told the Senate last year that the bill would increase trustee obligations and regulatory powers in the default super sector, but not the 83% of retail sector assets dominated by the big-bank-owned funds.

“The vast majority – nearly 83% – of bank-owned and other retail superannuation assets are held outside MySuper and will be excluded from the requirement,” he said.

“This is the case notwithstanding that such products, on average, underperform MySuper products, where the majority of industry super funds are held.

“The government still haven’t advanced any evidence that their proposals will improve returns for members. They’ve talked about risk management and improving governance, but at the end of the day the track record is clear: for the 10 years to 30 June 2017, SuperRatings data shows on average that industry super funds have outperformed bank-owned super funds by more than 2% a year.”

The Turnbull government accepts that last year’s legislation was aimed squarely at the MySuper regime, and that if the bill was reintroduced without amendments it would likely get defeated.

It will face pressure to remove the bill’s emphasis on MySuper products if it wants the Senate to pass the legislation.

Whish-Wilson told Guardian Australia that the Greens would not support any legislation that is part of an “ideological attack on industry super funds”.

“If the government wants to do serious reform of superannuation and bring a clean, non-ideological bill that doesn’t impose standards on industry funds that it won’t put on the banks, then we can talk,” he said.

“And while they are at it they can adopt the Greens policy of making the Australian Competition and Consumer Commission the conduct regulator of the superannuation sector, which is so plainly needed after APRA’s failures.”
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Fiona Bennett's APRA in Katter's sights 1 month 2 weeks ago #4029

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APRA needs to be held to account on superannuation fund performance

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A joint paper submitted to the royal commission on Friday by APRA and ASIC on their roles in regulating super entities ...
A joint paper submitted to the royal commission on Friday by APRA and ASIC on their roles in regulating super entities is telling. David Rowe
Adele Ferguson AFR Woodcut

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by Adele Ferguson

A multibillion-dollar Commonwealth superannuation fund whose 137,350 members include public servants, defence personnel, SES officers and some former politicians, has been

www.theguardian.com/australia-news/2018/...-duties-senator-says


Super trustees should face fines and jail for failing duties, senator says

Banking reform campaigner John Williams blames Labor and Greens for not supporting legislation, but urges PM to try again

Gareth Hutchens
@grhutchens
Email

Wed 22 Aug 2018 07.28 AEST
Last modified on Wed 22 Aug 2018 09.55 AEST

Shares
66
John Williams
John Williams: ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed.’ Photograph: Mick Tsikas/AAP

Nationals senator John Williams has urged the Turnbull government to push ahead with legislation that will see superannuation trustees face up to five years in prison for stealing workers’ super savings.

Williams, one of the earliest backers of the banking royal commission, told the Coalition partyroom on Tuesday that super trustees must face civil and criminal penalties of up to $420,000 and five years’ jail respectively for failing to act in the best interest of their members.

He said legislation introducing tougher penalties on super trustees that offer MySuper default products had stalled in the Senate last year because Labor and the Greens refused to support it, but the government ought to revisit it.

“I said to the party room, ‘Bring it on, jam it up there, and let’s see if they’ve got the guts to oppose it this time after what the royal commission’s revealed’,” Williams said.
AMP to compensate super investors after fresh humiliation at royal commission
Read more

“I’m confident it will be brought on, and I’d expect it hopefully in the next couple of months, or sooner.”

The royal commission finished its interrogation of the super industry last week, revealing millions of Australians have been ripped off by their super funds with exorbitant fees and charges.

The reputation of institutions such as Commonwealth Bank and AMP took yet another battering, and the embattled wealth management giant AMP agreed to pay $5m to compensate almost 50,000 super fund members short-changed by their investments.
Advertisement

Williams has asked his Coalition colleagues to refocus their attention on penalties for super trustees who fail to act in the best interest of their members.

However, the Greens say the reason they opposed the legislation that Williams is now championing is because it was aimed squarely at MySuper default products which are dominated by “industry” super funds (which are often associated with unions).

They say the legislation did nothing to increase penalties on “retail” super funds, which are run by the major banks, where the billion-dollar scandals have occurred.

The Greens’ Treasury spokesman, Peter Whish-Wilson, told the Senate last year that the bill would increase trustee obligations and regulatory powers in the default super sector, but not the 83% of retail sector assets dominated by the big-bank-owned funds.

“The vast majority – nearly 83% – of bank-owned and other retail superannuation assets are held outside MySuper and will be excluded from the requirement,” he said.

“This is the case notwithstanding that such products, on average, underperform MySuper products, where the majority of industry super funds are held.

“The government still haven’t advanced any evidence that their proposals will improve returns for members. They’ve talked about risk management and improving governance, but at the end of the day the track record is clear: for the 10 years to 30 June 2017, SuperRatings data shows on average that industry super funds have outperformed bank-owned super funds by more than 2% a year.”

The Turnbull government accepts that last year’s legislation was aimed squarely at the MySuper regime, and that if the bill was reintroduced without amendments it would likely get defeated.

It will face pressure to remove the bill’s emphasis on MySuper products if it wants the Senate to pass the legislation.

Whish-Wilson told Guardian Australia that the Greens would not support any legislation that is part of an “ideological attack on industry super funds”.

“If the government wants to do serious reform of superannuation and bring a clean, non-ideological bill that doesn’t impose standards on industry funds that it won’t put on the banks, then we can talk,” he said.

“And while they are at it they can adopt the Greens policy of making the Australian Competition and Consumer Commission the conduct regulator of the superannuation sector, which is so plainly needed after APRA’s failures.”
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Fiona Bennett's APRA in Katter's sights 1 month 1 week ago #4039

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Revealed: How the RBA kept the banks afloat with a $4 billion daily lifeline

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Former RBA governor Glenn Stevens: "Your job as a central bank in these situations is to liquefy the system to the ...
Former RBA governor Glenn Stevens: "Your job as a central bank in these situations is to liquefy the system to the extent needed." Peter Braig
Karen Maley AFR Woodcut

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by Karen Maley

It's an eerie parallel. In early 2008, the forbearance of the newly installed government in Canberra was being sorely tested – as it is now – when the country's big four banks hiked their home interest rates in tandem, even though the Reserve Bank of Australia had not raised its official interest rates.

The then treasurer Wayne Swan urged customers to vote with their feet, just as Prime Minister Scott Morrison is advising borrowers to shop around.

But a decade ago the frictions were forgotten as the GFC hit. Now, for the first time, RBA leaders give a detailed account of how they worked side by side with the banks during those dark times, and how the banking guarantee turned into a "nice little earner" for Canberra.

Cental bankers shun the spotlight, it's part of their DNA. Typically, top executives at the Reserve Bank of Australia carry out their work in hushed tones behind closed doors. But in 2008 senior Reserve Bank of Australia officials took centre stage in a draining, protracted struggle as they fought to sandbag Australia's banking system from the maelstrom that was the Global Financial Crisis.

For months, there had been ominous signs that something was awry. September 2007 witnessed the first run on a British bank in 150 years, as panicked savers queued up outside branches of Northern Rock, which had relied on borrowing from international money markets to fuel its exponential growth.
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The following March, US investment bank Bear Stearns was swallowed up by larger rival JP Morgan Chase after the firm's long-time clients and trading partners, worried about its huge bets on toxic subprime mortgages, raced to withdraw funds.
Scale of destruction

In Australia, October 2007 saw the troubled non-bank mortgage lender RAMS – which was struggling to roll over $6 billion in short-term funding – taken over by Westpac. Within months, investment banks Babcock & Brown and Allco, which had also enjoyed spectacular debt-fuelled expansions, were in a death spiral as nervous lenders pulled funding.

But it wasn't until September 2008, after prominent US financial services firm Lehman Brothers filed for bankruptcy protection and as US insurance giant AIG teetered on the brink of collapse, that the world would discover the scale of destruction wreaked by a full-blown financial crisis.
Bear Stearns was one of the canaries in the goldmine, warning in mid June 2007 that two of its hedge funds invested in ...
Bear Stearns was one of the canaries in the goldmine, warning in mid June 2007 that two of its hedge funds invested in sub-prime backed CDOs were in trouble. The funds went into liquidation the following month. AP

Those at the front line of the battle have now spoken to AFR Weekend about those nightmare times, their discussions with their offshore counterparts, and the ingenious mechanisms they came up with to ensure that Australia's banks had enough funding to allow them to come through the global financial meltdown largely intact.

Australia's efforts were led by the then head of the RBA, Glenn Stevens, and what he describes as his "fabulous team": deputy governor Ric Battellino (who had previously spent decades running the RBA's financial markets operations and who Stevens says "understands the mechanics of central banking better than anyone in the world, probably"), Philip Lowe (now RBA governor, then in charge of financial stability), Guy Debelle (now deputy governor, then running financial markets) and Malcolm Edey (who led the RBA's economics team).

Of course, in the halcyon pre-crisis days, the Australian banks had enjoyed a level of profitability that made them the envy of their brethren around the world. This meant that, unlike many US and European banks, they hadn't been tempted to load up on with US subprime securities to boost earnings.

As a result, even when global financial markets were in complete disarray and asset prices were plunging, the RBA didn't find itself confronted with a bunch of banks with unsaleable, and worthless, US subprime bonds on their books. Instead, Australia's central bank knew exactly what needed to be done.
The banks realised very quickly that the only one that could provide the liquidity they needed during that period was ...
The banks realised very quickly that the only one that could provide the liquidity they needed during that period was the RBA, a former senior RBA official says. Karl Hilzinger

"The main thing we did – which a lot of other central banks didn't – was that we realised very early on that this was a liquidity crisis, and the answer was to flood the banks with liquidity," recalls one former senior RBA official.
Key issue

"I think the Bank of England helped to precipitate the crisis with Northern Rock. It took the attitude, 'you've behaved very badly, you need to be punished'. But that's such a counter-productive approach."

In contrast, he says, "the RBA stepped in very early and provided a heap of liquidity to the banks until they could get their funding sorted out".
Customers queuing outside a Northern Rock branch in York in 2007, as savers across Britain sought to remove their money ...
Customers queuing outside a Northern Rock branch in York in 2007, as savers across Britain sought to remove their money from the crisis-hit bank. John Giles

Glenn Stevens, Reserve Bank governor from 2006 to 2016, agrees.

"Your job as a central bank in these situations is to liquefy the system to the extent needed. Most of that liquidity provision can come through your standard facilities, and, if need be, you can invent some new things. Or you can widen the pool of eligible collateral if that seems sensible."

As a result, he says, the key issue becomes "do all the players in the system have appropriate collateral to bring us if they feel in need of extra liquidity?"

In its daily market operations, the RBA made sure it was extremely generous with the cash it made available to the banks. "It was far above what they needed. There was so much money available," recalls one senior RBA official.
Centre of the storm: Then treasurer Wayne Swan, left, and RBA governor Glenn Stevens in November 2008.
Centre of the storm: Then treasurer Wayne Swan, left, and RBA governor Glenn Stevens in November 2008. AP

Just how much money is evident in the figures. According to the RBA's 2009 annual report, the central bank's daily cash advances to the banking system averaged close to $4 billion in the year to June 30, 2009, up from $2.5 billion in 2007/08, and many times the daily average of $750 million in the five years before the financial crisis.

What's more, in September 2007, as TV footage showed the queues snaking around Northern Rock branches, the RBA announced that from the following month it would accept residential mortgage-backed securities, backed by prime full-doc AAA-rated residential mortgages, as security for its loans.

The RBA was also quick to realise the potential tensions if the banks' access to offshore funding dried up. After all, Australian banks raised about 60 per cent of their funding from wholesale markets, and almost half of this came from offshore. Some $220 billion in offshore borrowings were due to be repaid within a year.
Funding needs

Guy Debelle recalls that from late 2007 he and Charles Littrell, a senior APRA executive, had been having regular chats with the banks, taking a keen interest in their plans for raising funds offshore, and quizzing them about what assumptions they were making about their market access.

"It was often me and Charles having a chat with the bank treasurers," recalls Debelle. "We were keeping a pretty close eye on what their funding needs were going to be."

Debelle sums up the message that he and Littrell were giving the banks: "It was very much, 'when it's fair sailing – not even good sailing, just fair sailing – hit the market."

Bank treasurers took the hint. They tried to change their funding structure by issuing longer-dated debt, even though this was more expensive. And when conditions In global markets temporarily improved in mid-2008, they hit global markets hard, almost doubling their bond issues from a year earlier.
Guy Debelle: "What [the banks] did have were the mortgages that they had written themselves. And so we got them to ...
Guy Debelle: "What [the banks] did have were the mortgages that they had written themselves. And so we got them to package them up into a security, so they didn't just dump a bunch of mortgages on us." Peter Braig

But waters became treacherous after Lehman's collapse on September 15, 2008.

As Stevens explains, "my feeling has always been that having seen Bear Stearns get sorted, there was an assumption that entities bigger than them would always be sorted out ... When it became apparent that assumption was mistaken, then we were in a new ballpark."

He adds that "in an environment when everybody was already on edge, that proved to be the final straw, and capital markets essentially closed for a while."

This tested the resilience of banks worldwide, as panicked savers rushed to withdraw deposits. Ken Henry, the then Treasury chief who is now chairman of the National Australia Bank, later recounted that he'd even had a call from his mother asking whether she should withdraw all her savings from her bank.

"I think about late 2008 I did start to get really worried," recalls one senior RBA official. "It really was quite scary. Once you get a run like that, with rumours going around about people going into banks and taking out suitcases full of cash – in fact there was a rumour that one of the senior board members of one of the banks was doing it."
Markets shuttered

With global markets essentially shuttered, Australian banks were relying heavily on the RBA to cover their funding needs.

"The banks were dealing directly with the RBA. There was continual contact with the banks. All day, every day, the banks were dealing with us," he adds.
With global markets essentially shuttered, Australian banks were relying heavily on the RBA to cover their funding needs.
With global markets essentially shuttered, Australian banks were relying heavily on the RBA to cover their funding needs. David Rowe

"It was a help that we had the trust of the four majors here. They trusted the RBA and kept it fully informed of everything they were doing. From that perspective, the trust between the RBA and the majors was important in terms of getting through."

It didn't take long for the banks to cotton on to the fact that their salvation lay in the Reserve Bank, rather than their regulator, the Australian Prudential Regulation Authority.

"Banks very quickly realised that the only one that could provide the liquidity they needed during that period was the RBA," he says.

But this reliance meant there was an extraordinary burden on the central bank to ensure that the banks were supplied with enough funding – or, in central banking terms, liquidity.

And that's where the RBA's decision to accept residential mortgage-backed securities, backed by high-quality home loans, as collateral for loans from the central bank comes in.

Debelle explains that at that stage, the banks didn't hold a lot of high-quality liquid assets – such as government bonds – on their balance sheets, largely because a succession of bumper government budget surpluses had shrunk the amount of government debt on issue.

"What they did have were the mortgages that they had written themselves. And so we got them to package them up into a security, so they didn't just dump a bunch of mortgages on us," he explains.

"We required that, because if we got stuck with them then we were going to have to sell them, or manage them. So you need a vehicle in place beforehand."
"We required that, because if we got stuck with them then we were going to have to sell them, or manage them. So you ...
"We required that, because if we got stuck with them then we were going to have to sell them, or manage them. So you need a vehicle in place beforehand." Jessica Hromas
Same structure

Fortunately, banks had been issuing mortgage-backed securities before the crisis, and they essentially used the same structure for bundling their mortgages up in securities which they handed to the RBA.

This mechanism allowed Australia's banks to borrow tens of billions of dollars from the RBA. As at the end of December 2008, the RBA held $44.7 billion in these self-securitised mortgages as security for loans. By June 2009, that had fallen to $21.2 billion.

This worked exceptionally well for the big four banks – the Commonwealth Bank of Australia, Westpac, NAB and ANZ Bank – which had ample high-quality residential mortgages on their balance sheets that they could package up as security for loans from the Reserve Bank.

The hitch was that some of the smaller regional banks had dropped lending standards in an aggressive bid to expand their market share before the GFC hit.

What stopped them from packaging up their own home loans as collateral for loans from the RBA?

"They could have, but that wasn't going to solve the problem. These small banks had much lower quality assets on their books," explains a former top RBA official. He rues that APRA "had really taken its eye off the ball for the smaller banks".

Did he tell Stevens about the extent of the problem? "I didn't have to tell Glenn, he knew they were in poor shape. The issue was what to do about it."
The gravest fears concerned two regional banks: Queensland's Suncorp (which had $75 billion of assets) and West ...
The gravest fears concerned two regional banks: Queensland's Suncorp (which had $75 billion of assets) and West Australia's Bankwest ($60 billion). AAP

The gravest fears concerned two regional banks: Queensland's Suncorp (which had $75 billion of assets) and West Australia's Bankwest ($60 billion). The West Australian bank's problems were exacerbated by the predicament of its own parent, the British bank HBOS, which was itself in dire financial straits, and was ultimately rescued by British taxpayers after being bought by Lloyds at the height of the financial crisis.
Stronger player

In October 2008, the Commonwealth Bank announced that it would pay $2.1 billion to buy Bankwest.

"They were absorbed by a stronger player," Stevens says.

"What I'd say is that when circumstances come along that place an entity under some pressure, it's pretty likely that one of the solutions that's going to be thought about is they get absorbed by someone stronger. And in most crises that happens."

Did the RBA put pressure on the Bankwest's struggling parent HBOS to sell its Australian offshoot?

"The Reserve Bank is not in a position to dictate to the parent," Stevens replies. "However, we were apprised of what was going on. And my feeling was that that particular transaction more or less took off the table a problem we really didn't want to see get worse.

"And so I was content with it, acknowledging that there were competition ramifications."
"I think that with the wave of governments feeling the need to issue guarantees of various kinds, it was going to prove ...
"I think that with the wave of governments feeling the need to issue guarantees of various kinds, it was going to prove very difficult – if not impossible – to completely stand aside from that, no matter how strong you felt your institutions were," says Glenn Stevens. Brendon Thorne

Still, Stevens notes that the extent to which the takeover diminished competition is a moot point. "Actually, that competition wasn't going to be there anymore because the business model that allowed it – namely the wholesale funding access – was gone. So that form of competition was no more.

"And that wasn't something any regulatory authority or central bank or anyone else decided. It was capital markets that ended it."

The RBA had another major problem to contend with. In late September 2008 global markets received another jolt when the Irish government gave a blanket guarantee to all Irish banks, covering €440 billion of customer deposits and bank borrowings. Germany, Denmark and Greece quickly followed suit with unlimited deposit guarantees.
Widespread phenomenon

As Stevens recalls, "When I saw the Irish guarantee, I thought that this is a phenomenon that will probably become widespread. And it did.

"Then it becomes very difficult for any government to answer the question, 'Why are you not prepared to guarantee yours in some way?'"

The Irish move galvanised Australian authorities. Earlier initiatives to guarantee bank deposits had been caught up in political point scoring, as the Rudd government's proposal to guarantee individual deposits of up to $20,000 was attacked by Malcolm Turnbull, the then Opposition leader, who claimed it did not go far enough and that the guarantee should apply to deposits of up to $100,000.

At an emergency all-day meeting held at the RBA's Martin Place headquarters on Friday, October 10, the Council of Financial Regulators (which includes the RBA, APRA, the Australian Securities and Investments Commission and Treasury) agreed that the Australia government needed to act to support its banks.
David Rowe

The following Sunday, the Rudd government unveiled its proposed bulwark. It had decided to guarantee all wholesale borrowings of Australian banks, building societies and credit unions, which allowed them to take advantage of the government's Triple A rating. Financial institutions with a rating of Double A minus or above charged a fee of 70 basis points – a relatively low charge compared with other countries – while banks with lower ratings paid a higher amount.

"I think that with the wave of governments feeling the need to issue guarantees of various kinds, it was going to prove very difficult – if not impossible – to completely stand aside from that, no matter how strong you felt your institutions were," says Stevens.

"I felt that ours were strong, but in those times of very febrile, volatile perceptions, it's probably not prudent to take too many chances."

Debelle agrees. "If the other countries hadn't done that, I don't know that we would have gone down that path. But with the others doing it, there was absolutely no choice."

But there was some consternation at Canberra's decision to offer sweeping – and free – guarantees of all retail deposits. In particular, the RBA was concerned that this would encourage large depositors to put their surplus cash into banks, rather than the short-term money market, which was still working well. The RBA argued that those with large deposits should pay a hefty fee for the government guarantee.

Within a fortnight, the Rudd government had bowed to the RBA's concerns. It announced that the free government guarantee would only apply to deposits of up to $1 million, with a fee applying on larger amounts.

Armed with their new Triple A weapon, Australian lenders hit the market, issuing $73 billion of bonds ($70 billion of which sported the guarantee) in the first three months after it came into effect, compared to only $2 billion in the three months before its introduction. What's more, no claims were ever made against the Australian government, and the fees charged generated $4.5 billion of revenue.

As Debelle quips, "it turned into a nice little earner for the government."

The government guarantee also proved to be a critical lifeline for the smaller, regional banks. "If it hadn't been for the bank guarantee, someone else would have taken over Suncorp," recalls a former senior RBA official. [ANZ was at that stage circling the Queensland lender.]

"I think if it weren't for the actions of the RBA and the bank guarantee, there would have been three or four bank failures ... none of the smaller banks were going to survive." In the Australian context, this would have resulted in smaller, regional banks being absorbed by their larger, more robust competitors.

So just how grateful were the banks for the RBA support?
In denial

"They were very grateful," he says. "There was a constant, 24-hour discussion between the major banks and the RBA every day ... The four majors all understood exactly what was done to look after them. And I have to take my hat off to the bank treasurers, they kept on top of the situation."

In contrast, he says, many of the smaller lenders failed to come to grips with their predicament. "I think the boards and the chairmen and the senior executives of some of the smaller banks were in denial. It was pathetic.

"They couldn't understand why they'd got into the situation and what they should do about it. They were blaming everybody else ... They didn't cover themselves with glory at all."

Debelle agrees that the banks were grateful, "at the treasurer level at least".

"They appreciated the various forms of support. They recognised that us expanding our liquidity provision and the guarantee absolutely helped. And if you asked them today, I think they would still say that."

But, he shrugs, "whether the message got lost slightly further up the chain, maybe..."

Did he find it somewhat grating that after the crisis had abated, bank bosses began to pat themselves on the back and to argue that the fact that Australia had not been forced to bail out its banks demonstrated what exemplary managers they'd been.

"A little bit," he concedes.

Still, he adds: "What they hadn't done was go and buy a lot of terrible assets. So that was good."
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