Energy and housing are issues for government, not the the RBA, says report

The release of Thursday’s review makes clear that housing affordability is an issue for governments​.

Housing affordability and the economy’s transition to cleaner forms of energy were two areas the landmark review of the Reserve Bank highlighted were better left to government policies.

It’s an interesting point of difference with how New Zealand’s central bank has seen its mandate change since 2021 on housing policy objectives.

Across the ditch, the NZ government issued a direction to its Reserve Bank requiring it to consider policymakers’ objectives for supporting more sustainable house prices when setting financial stability policy, including bank lending rules.

NZ’s central bank has a broader remit in banking regulation, so the move wasn’t completely out of step, but it also directed the RBNZ to assess how its actions would improve affordability for first-home buyers and cool investor demand for housing.

For the RBA, the release of Thursday’s review made clear that housing affordability was an issue squarely for governments. That was even though the document said the central bank should continue to monitor and communicate the implications of housing market developments for monetary policy.

“Housing prices are influenced by monetary policy but are also influenced by a range of other factors over which monetary policy has no control such as demographic trends, the policies of governments and councils on zoning, transport infrastructure and tax settings,” the review said.

“Beyond the cyclical effects of monetary policy, the longer-run downward trend in interest rates – a global phenomenon over which the RBA has little control – has also contributed to the longer-run upward trend in house prices.

“If monetary policy were to have an objective for lower or more stable housing prices, it would require the RBA to deliver considerably more volatility in inflation and employment.

“The Review considers that other government policies are better placed to manage housing affordability through the economic cycle by influencing the balance of supply and demand in the housing market.”

While energy transition will be a dominant theme for the economy between now and 2050 – as Australia works toward achieving net zero emissions – the review doesn’t back an RBA climate transition objective.

“Monetary policy tools do not provide a targeted response to the issue and using them for this purpose may inadvertently compromise the enduring objectives of price stability and full employment,” the document said.

“Other government policies are better suited to target climate transition, and public policy choices in this area should be made by elected representatives.”

Other central banks have, though, taken a different approach. In 2021, the Bank of England became the first central bank to include climate change in its monetary policy committee remit.

The US Federal Reserve in the same year formed two committees to deal with climate effects.

Compliance watch

New Bank of Queensland chief Patrick Allaway wasn’t shying away on Thursday from the fact the regional lender might fall foul of regulators, including Austrac this year.

The bank is working to fix its anti-money laundering and other risk-compliance systems after identifying shortcomings.

“We’ve been very transparent … over the past six months as to the need to strengthen our operational risk which includes our AML process,” he told this column.

“As part of that program we did a controlled self assessment where we’ve identified ourselves that we had work to do.

“We obviously worked very closely with our regulators because they do their ongoing reviews as well.

“We are not aware of any fines or EUs (enforceable undertakings) but we think it’s appropriate to call out that risk, because all banks have that risk and we’re very focused with getting on with it.”

Bank of Queensland chief executive Patrick Allaway. Picture: Jane Dempster

The strengthening of BOQ’s risk systems and processes will have oversight from the board and also be subjected to assurance by an independent party or firm, who Allaway didn’t want to name on Thursday.

BOQ last week revealed a $60m provision for what it is calling a multi-year “integrated risk program”, or basically just fixing and upgrading risk management and compliance practices.

Asked about whether the compliance concerns may involve the bank’s owner-manager branch network, Allaway shrugged off that suggestion.

“The owner managers have the same risk controls and compliance requirements that we have across the bank,” he said.

The banking sector has certainly been a fertile hunting ground for Austrac and its enforcement actions and penalties.

National Australia Bank last year entered into an enforceable undertaking with the regulator following an investigation that began in mid 2021.

NAB agreed to a remedial action plan after Austrac found non-compliance in targeted compliance assessments, and the bank also made its own disclosures to the regulator.

Westpac, however, was Austrac’s biggest corporate scalp when it agreed to pay a record $1.3bn penalty to the regulator in 2020. That related to millions of breaches of anti-money laundering laws.

Commonwealth Bank’s breaches of anti-money laundering and counter terrorism financing legislation preceded those of Westpac, and the nation’s biggest bank paid a $700m penalty in 2018.

Jarden update

Thursday marked bonus day at newcomer investment bank Jarden. Australian staff were told of their bonus payments – for those that got them – after what was a challenging period operationally during its financial year.

This column understands there were a small number of investment banking staff who were being performance managed in light of the bonus season getting under way, which may lead to exits in coming days and weeks.

Jarden was last week making headcount reductions in its equities and research business, with about six roles being cut.