Ken Henry is right, and should resign because of it

From Chanticleer today on the royal commission:

Orr asked Henry what roll the Australian Prudential Regulation Authority should be doing to be satisfied that boards are ensuring their companies have a strong risk culture.

“I don’t know whether this is the appropriate forum to say, but I will say it here now anyway,” Henry said. “We have said consistently to APRA the word ‘ensure’ is a bit strong. It’s really difficult for a board to be held accountable for ensuring anything, just as it’s rather difficult to hold APRA to that standard of ensuring an appropriate risk culture.”

“But someone, surely, must be responsible for ensuring that there is an appropriate risk culture. If it’s not the board, who is it?”

Henry held fast, suggesting words such as “model, lead, encourage” were more appropriate.

Henry is, of course, right. You can’t guarantee good behaviour or good culture. What the society can do is codify the kinds of behaviour that it wants to see in the rules and regulations that govern an industry then prosecute those that break them. As MB has said from the outset, all of the focus on bank culture is misplaced. It is simply an expression of the regulatory structure and application. If you want the behaviour to change then change the rules and enforce them.

That’s also why Ken Henry should resign. His bank has behaved abominably under his board tenure and the royal commission exists only because of it. The Hayne process is the new ethical standards being formulated around him and his record disqualifies him from ongoing service. He said yesterday it would take him ten years to change the bank’s culture. That’s a resignation letter if I’ve ever seen one!

Then there is his faulty memory, via Banking Day:

Ken Henry, chair of the board of National Australia Bank, yesterday produced the biggest clanger yet at hearings of the banking royal commission – unaware or forgetting the bank’s punishment one year ago for rate rigging around the bank bill swap rate from 2010 to 2012.

Drawn by counsel assisting, Rowena Orr to meditate on “financial institutions all over the world continuing to engage in serious misconduct”, and specifically prompted on “the manipulation of interbank interest rates and foreign exchange rates,” Henry recalled little of his brief.

…Last year NAB volunteered that it made attempts on each of 20 December 2010, 17 January 2011, 7 February 2011, 7 February 2011, 30 June 2011, 12 July 2011, 5 October 2011 and 25 October 2011 “to engage in conduct [in the prime bank bill market], in trade or commerce, in connection with the supply or acquisition of financial services that was, in all the circumstances, unconscionable.”

In a ruling in November 2017, Justice Jayne Jagot wrote that NAB “agreed that the attempted contraventions were deliberate and not transparent to counterparties.”

The bank paid a penalty of A$10 million, the same as imposed on ANZ for similar conduct. The Federal Court has also sanctioned Westpac and two other banks for manipulating BBSW.

Someone needs to tap our Ken on the shoulder.

David Llewellyn-Smith
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  1. What’s Deep T up to these days?
    Surely they’ve been retired for long enough now that boredom has set in. And here, right here , is a job with a challenge; that requires knowledge, honesty and character. DeepT to a ‘T’ if you like!

  2. TailorTrashMEMBER

    10 million ? ….easy to forget
    …..pick that up in a few weeks on those nice little charges on foreign transactions on credit cards used in Bali by the punters

  3. This: “It is simply an expression of the regulatory structure and application. If you want the behaviour to change then change the rules and enforce them.” Amen, Hallelulah, Shut the gate

    Having worked in these toxic institutions, and blown the whistle on the corrupt practices on display at the RC – we are finally being allowed to see management and regulators interrogated outside of the confidential ASIC non-investigations. Shipton crying “lack of resources” and Henry crying “it’ll take 10 years” just prove they aren’t even base-level competent. These hacks did more to foster the very profitable criminal conduct, and attempted destroy careers of anyone who stood in their way, than any bad apple they try to pin it on. Lock them all up!

    • If there was any intention of locking them up, we would be discussing criminal proceedings not an RC.
      The RC is a mere distraction for a while before getting back to business as usual, at least for the next 10 years till it all blows over. Ken said so himself.

      • Within the next ten years banking as we know it will have been turned on its head – it will look nothing like it is today and not because of voluntary change, it’ll be because a crisis will force change.

      • How many crisis do you think banking has undergone in the last 500 years?
        How much change has resulted?

    • When Ken was at the treasury and came out with his white paper it sounded good to me, but his actions like Anna are impossible to condone. So we get criminal behaviour for ten years and hope the generations forget; that’s what it sounds like to me. Also, the RBA last week saying we need to trust the institutions shows how little they even recognise about the current crimes committed and about to be. After the RC what then and who’s going to prison, and if it’s no one then what was this all about. The LNP denying we need a corruption watch dog just another point to show this isn’t a serious path ahead.

      It’s why I have no faith in out institutions. We all need to look after ourselves as much as possible socially and financially, because those in power seem incapable of the job we expect of them. My neighbour told me yesterday she voted for Andrews as he seemed lass corrupt than Guy…I think that’s says a lot.

      • The RC will never result in anyone going to prison. All evidence heard is specifically excluded from being used in any court of law.
        The point, like all RC’s, bread and circuses.

  4. All care no responsibility. Surely there are some wombats who need a tummy tickle – a far better use of his time.

  5. If the Chairman of your employer is out in public telling people it’ll take a decade to clean things up, he’s basically telling you that they’re just waiting for the cops to finish their spiel about the noise complaint & leave so the party can resume…

  6. Can’t agree, H&H. He board can impact culture by demanding consequences for culture failures. Substantial docking of bonuses, sackings etc. It’s not that hard. People get the message pretty quickly.

    • That will cause a change of behaviour. To cause a change of culture is virtually impossible without wholesale replacing of people.

      • Banks are very different beasts to the average business: they lend fake money to people and earn real profits i.e. they have a licence to print the stuff so the culture is always going to revolve around picking up that baton and running with it. Demanding a culture change (or trying to enforce it) is like trying to swear a bunch of male clients in a brothel to celibacy.

  7. Yeah, listening to him now sucking on his teeth and pontificating from his position of all-knowingness I’d suggest not so much a tap on the shoulder but a jab to the snout – arrogant nob. Again, Rowena is having trouble controlling an alpha.

    • She is good though, after letting the nob run the show for a while she is now back putting the heat on him. Ken Henry is carrying on as if he is royalty, even having the hide to all but say that a proposition put to him by Commiss Hayne was overly simplistic.

  8. The rigging of LIBOR in Europe has resulted in about 1 Billion Euro in fines across 3-4 banks. 10M AUD seems absurdly low.

  9. Henry just dropped a bombshell of NAB being reoriented to pursue customer outcomes subject to tolerable shareholder performance.

    IF he is not lying, it does seem like the end of excessive leverage.

  10. The problem with most of this stuff is we have the ‘athletes measuring their our performance’ rather than someone truely independent.

  11. Corrupt NAB Chairman Dr Henry seems to have trouble in answering a direct question with a direct answer at the RC by the mesmerizing QC Rowena Orr which just highlights how rotten to the core all of these senior bankers have become here in Australia.

    “Here’s an edited version of the exchange. It gets a bit tough towards the end.”

    Orr: “Well, why didn’t the board step in earlier to ensure that that was done?”

    Henry: “Yes. I’ve already answered that he request and I .. And I don’t know the answer to that question. You know, at some point, obviously, we should have. Maybe 2015, maybe 2016, maybe 2017. Certainly by this year, 2018, certainly at this point – okay, did – did I use the words “enough is enough”, I don’t know. I may have. I was certainly pretty upset .. It was inconsistent – quite inconsistent with the discussions that we had been having with management about the purpose of the organisation, the vision of the organisation, the values of the organisation, appropriate behaviours in the organisation. Of course we were upset.”

    Orr: “Do you accept that the board should have stepped in earlier?”

    Henry: “I wish we had, let me put it that way. I wish we had – I still don’t know.”

    Orr: “I would like you to answer my question, Dr Henry. Do you accept that the board should have stepped in earlier?”

    Henry: “I have answered the question how I can answer the question.”

    Orr: “I’m sorry, is it a yes or a no, Dr Henry?”

    Henry: “I’ve answered the question the way I choose to answer the question.”

    Orr: “Well, I would like you to answer my question. Do you accept that the board should have stepped in earlier?”

    Henry: “I wish we had.”

    Orr: “I’m going to take that as a yes, Dr Henry?”

    Henry: “Well, you take that as a yes, all right.”

    • No, you don’t get to “answer the question the way you choose to answer the question” Mr Henry, its a royal commision, you answer the damn question!

      • Her question was unclear in fairness. Should there have been an action in hindsight? … gives one answer and was there a point at which there was enough known that a decision should have been made at the time? …. might possibly not give the same answer. Yes or no sounds laudably simple but that assumes the question is completely defined.

  12. Arguing over the word “ensuring” is obfustication and semantics.

    ASIC should have been issuing breach notices and fines for the last ten years. There should have been suspensions of banking licenses and maybe even jail terms for fraud for some bank manager and directors.

    Management at ASIC need to be investigated for fraud. I think a forensic accounting examination of their personal income would divulge some very interesting payment schedules, expensive holidays and “one off” payments from income sources unknown.

  13. Ferdinand Pecora would differ with Ken…

    His deposing skills are legion and he might want to get a copy of his book about the Senate investigations titled Wall Street Under Oath: The Story of Our Modern Money Changers.

    “Pecora’s investigation unearthed evidence of irregular practices in the financial markets that benefited the rich at the expense of ordinary investors, including exposure of Morgan’s “preferred list” by which the bank’s influential friends (including Calvin Coolidge, the former president, and Owen J. Roberts, a justice of Supreme Court of the United States) participated in stock offerings at steeply discounted rates. He also revealed that National City sold off bad loans to Latin American countries by packing them into securities and selling them to unsuspecting investors, that Wiggin had shorted Chase shares during the crash, profiting from falling prices, and that Mitchell and top officers at National City had received $2.4 million in interest-free loans from the bank’s coffers.

    Spurred by these revelations, the United States Congress enacted the Glass–Steagall Act, the Securities Act of 1933 and the Securities Exchange Act of 1934. With the United States in the grips of the Great Depression, Pecora’s investigations highlighted the contrast between the lives of millions of Americans in abject poverty and the lives of such financiers as J.P. Morgan, Jr.; under Pecora’s questioning, Morgan and many of his partners admitted that they had paid no income tax in 1931 and 1932; they explained their failure to pay taxes by reference to their losses in the stock market’s decline.”

    Then again its hard to find any reference to deception or fraud in mainstream economics – feature or bug – ????

    • Interesting reference although it seems more suited to GFC 2008 than Aust Banks 2018. More interestingly … US got comparatively few convictions and legislation out of 2010-16 period … gridlock would be the prob there.

      • The Corruption Pecora dealt was was not just a banking or financial problem imo, I think the AG under Obama said it himself – that no national security concern would be criminally investigated. You can additionally view Hudson’s experiences in the run up and aftermath of the latest episode.

        My personal Fav was Obama’s Secretary of Commerce pick and the relationship to his early days in Chicago.

        So I can’t grok where you get the gridlock view from.