Day 534: 'Rectify the damage'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 534.
Today in summary: The RBA has delivered the first rate cut in three years; almost 100,000 Australians' private details may have been exposed in a cyber attack on Westpac; finance chairs and executives have been hit with a Hayne pay cut; and AMP chair David Murray said the behaviours of leaders reinforced the effectiveness of an organisation’s conduct policies.
-- Alex
@AlexESampson
Current banker panic level: 🤑😡😥🧐
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The Reserve Bank has delivered the first rate cut in three years, lowering it from 1.5% to 1.25%, in an attempt to stimulate the economy. Before the RBA’s meeting Treasurer Josh Frydenberg warned bank bosses Australians would not tolerate a refusal to pass on in full any cut to the official interest rate.
Minister for Drought David Littleproud called on banks to pass on the full rate cut to farmers.
ANZ was the first bank to respond to the cuts, announcing it would decrease variable interest home loan rates in Australia by 0.18% a year. ANZ blamed increased costs in its business for its decision to cut by less than 0.25%. CBA and NAB said they would reduce interest rates on standard variable rate home loans by the full 0.25%.
The responses have been described as the first major test of public confidence the big four banks have faced since they were roasted by the banking royal commission.
The Housing Industry Association said the the move would build confidence in the housing industry but called on banks to increase lending.
HIA chief economist Tim Reardon said:
“APRA’s regulatory restrictions and increasingly conservative lending practices by banks are the cause of the credit squeeze. If banks do not pass on the full rate cut they will have magnified the impact of APRA’s rule changes and stifled the ability of the RBA to use monetary policy to rectify the damage caused by the credit squeeze.”
Almost 100,000 Australians' private details may have been exposed in an attack on Westpac's real-time payments platform PayID. Reports reveal the system, which allows the instant transfer of money between banks using either a mobile number or email address, could reveal enough information to facilitate identity fraud. The bank said it detected the mis-use and no customer bank account numbers were compromised.
This comes as a survey released today by Chartered Accountants Australia and New Zealand revealed more than 50% of financial professionals ranked cyber security as a high or very high risk to their organisation. But in conjunction with the Association of Chartered Certified Accountants, Macquarie University and telco Optus, the global survey of more than 1,500 financial professionals also found cyber security was not managed as a business risk and often left to IT specialists alone to handle. One third of survey respondents did not know whether their organisation has been the subject of a cyber attack. The group also estimated cybercrime would cost the global economy US$6 trillion (A$8.59 trillion) by 2021.
In February 2018 Australia’s Notifiable Data Breaches scheme came into effect, requiring organisations to report to the Office of the Australian Information Commissioner whenever a data breach occurred. The April-June Notifiable Data Breaches report revealed 305 notifiable data breaches across all sectors, with financial details breached in 42 per cent of cases.
Also in the world of cyber banking is AUSTRAC’s plan to launch court actions against financial institutions this year for breaching legal obligations to prevent money laundering.
Finance chairs have been hit with a 11% Hayne pay cut. The Governance Institute of Australia today published figures revealing the impact the royal commission had on remuneration across the financial and insurance sectors.
The drop was similar for managing directors and CEOs, who saw their pay packets drop by 10% and 21% respectively. Governance Institute CEO Megan Motto said board and executive remuneration was paying the bill for not putting the customer “at the centre of the banking experience”.
AMP chairman David Murray told delegates at the Financial Services Institute of Australasia’s AGM last week that the banking royal commission’s final report presented the opportunity to assess the objectives of financial laws. Murray, who ran the 2014 Financial System Inquiry, said there were significant legal and reputational risks in not adhering to the significant body of law regulating the sector.
He said Commissioner Hayne had exercised significant leadership in developing norms that could be understood and implemented by any employee at any level of a financial services organisation. Murray said the behaviours of leaders reinforced the effectiveness of an organisation’s conduct policies, rules, procedures and controls.
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Today’s burn prize: Credit Suisse analyst Jarrod Martin
“The outcome of the royal commission is known; what’s unknown is the capital reforms to come out of NZ before the end of the year and the implication that has for Australia.”
Martin was talking about the NZ central bank’s move to make the big four raise an extra NZ$25 billion (A$23.5 billion) in capital for their kiwi subsidiaries.
The Commentariat
The government should crack down on useless insurance in superannuation, writes business reporter Michael Roddan in The Australian.
“The Productivity Commission, which recommended a review of insurance in super, says the government is being forced to spend more on the Age Pension because life insurers are draining the savings of low and middle-income earners by up to $125,000. Low income workers, employees with patchy job histories, and those with multiple super accounts were most affected by the fee-drain.”
It is highly uncertain that the RBA can further stimulate demand without emptying its policy cannon. That means government may have to lend a hand, writes economics editor Alan Mitchell in the AFR.
“The RBA’s capacity to protect the economy against a global recession is part of any calculation about the riskiness of any major investment. Promises of budget surpluses notwithstanding, the Morrison government may have to lend a fiscal-policy hand. Even a political miracle can have a not-so-silver lining.”
UNSW Business School economics professor Richard Holden, writes in the AFR that the RBA has “finally” cut official interest rates to a record low of 1.25%.
“Our low-growth, low-inflation, secularly stagnated economy requires stimulus. And there are precisely two options: unprecedented monetary policy that could easily end up involving quantitative easing, or aggressive fiscal policy with big tax cuts and infrastructure spending that will involve the government running deficits.”
Today’s interest rate cut won’t be the only one in the coming months, writes SMH economics editor Ross Gittins.
“The Reserve Bank is cutting rates because the economy’s growth has slowed sharply, with weak consumer spending and early signs that unemployment is rising. In such circumstances, cutting interest rates to encourage greater borrowing and spending is the only thing it can do to try to push things along.”
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