How do banks get anything done?

Westpac released its self-assessment on culture and risk. Picture: AAP

APRA has whacked three of the big four banks with $500 million capital “fines” to offset operational risks evident from their reviews of performance as measured against a report on the Commonweath Bank.

Last year’s damning APRA report on CBA’s culture was a landmark in corporate governance and has served as a model for all big companies on how to operate at the senior executive and board level.

CBA was slugged with a $1 billion capital “fine”, which meant it had to park more capital to offset potential operational risks,

One of the problems with increased regulation is it’s making it hard to get money from the banks, which have become more cautious in the wake of the Hayne royal commission and increased pressure from ASIC and APRA.

Commissioner Ken Hayne repeatedly noted this should not be such a big issue, because all that was being asked of banks was that they obey the law.

That’s true, but the following excerpts from Westpac’s response tell you something about the way it and many other big companies operate, and which makes you wonder how they get anything done.

The bank, in a self-assessment on its culture, submitted to APRA last year and released today, notes at one point: “There is a tendency towards ‘completeness’, which can lead to acceptance and perpetuation of organisational complexity.”

Westpac’s observations also include:

• “There is a propensity in Westpac to believe that ‘more is more’: more analysis, more information, more documentation, more iteration of papers, more sign-offs, more meetings, more policies, more frameworks, more ‘stuff’ – frequently layered on without offsetting reduction or rationalisation.”
• “This can add rigour and thoroughness, but also unnecessary complexity, slow or impeded execution on a range of fronts, and challenges to cognition and thinking space.”
• This behaviour, labelled completeness for want of a better term, is paired with an acceptance and perpetuation of complexity: many employees resign themselves to complexity as the natural state of affairs at Westpac, and their response to that complexity is often to wrap more complexity around it – potentially adding risk in the process.”

APRA noted the responses it received from the big four banks and 33 other finance houses “confirmed that many of the issues identified in the inquiry were not unique to CBA”.

“This included the need to strengthen non-financial risk management, ensure accountabilities are clear, cascaded and enforced, address longstanding weaknesses and enhance risk culture.”

APRA chair Wayne Byres added: “Australia’s major banks are well-capitalised and financially sound, but improvements in the management of non-financial risks are needed.

“This will require a real focus on the root causes of the issues that have been identified, including complexity, unclear accountabilities, weak incentives and cultures that have been too accepting of longstanding gaps.”