Chirs Joye does a good job of summarising why the RBA needs new, external leadership:
For decades this author has argued that the RBA would benefit a great deal from external leadership. Having worked briefly there, the central bank is immensely – and I really mean extraordinarily – hierarchical, insular, supercilious, hubristic, resistant to outside influence, and exceptionally slow to recognise and respond to its own mistakes.
Too true! And more than a good enough reason to put the broom through the executive ranks.
But, this is a bit like changing deck chairs on the Titanic. There is a bigger, structural problem for Australian monetary management and it is not the RBA at all. It is Australia Prudential Regulatory Authority (APRA), which regulates the banks.
APRA’s duties used to be conducted within the RBA but were spun out after the HIH collapse. The separation has not served Australia well.
As a stand-alone entity, APRA’s “hierarchical, insular, supercilious and hubristic” culture puts the RBA to shame.
The RBA is exposed to extraordinary public glare. On the other hand, APRA is like a millenarian cult operating entirely in the dark.
This leads to some very bad public policy outcomes, such as politicisation of monetary policy and the capture of the regulator by the major banks, with “Evil” Anna Bligh the corruption spearhead.
Take, for instance, APRA’s role in the investor mortgage lending bubble of 2013-2018. APRA was condemned in parliament and by the Hayne Royal Commission for letting it happen.
But, mid-condemnation, former APRA head, Wayne Byers, was reappointed by Treasurer Frydenberg, in a great hosing of public accountability. At the time, an election loomed and the Morrison Government needed house prices to rise out of the royal commission. What followed were cuts to mortgage regulatory hurdles that allowed for this.
That’s the thing. These days, APRA is playing as significant a role in monetary policy settings as the RBA. Through either macroprudential tools, like investor mortgage limits, or manipulation of mortgage buffers that determine borrowing capacity, APRA is in control of credit distribution and house prices.
Clearly, this plays a major role in determining monetary and economic conditions, and the lack of coordination with the RBA, the price setter of credit, does not work at all well.
For instance, during Australia’s lost decade from 2011, as the world fought a currency war, the RBA refused to cut interest rates enough to compete, for fear of setting off another property bubble. It took APRA many years to figure out that it needed to contribute by tightening lending standards using macroprudential tools so that the RBA could lower rates further.
The result was years of lowflation, still more industrial hollowing out, and falling living standards.
Yet, despite APRA’s incredible power, as a stand-alone entity shrouded in unnecessary secrecy it is very vulnerable to manipulation by interests.
For example, today:
Analysts say the prudential regulator is likely to reduce so-called serviceability buffers to allow borrowers to get bigger loans as it prepares to release what will be a closely watched review of its housing market lending rules within the next fortnight.
APRA is about to loosen credit, at the behest of the big banks who are freaking out about losses emanating from the fixed-rate mortgage reset. Just as the RBA chases higher inflation with rate hikes owing to overly loose credit.
That is, APRA is going to drive interest rates higher.
I really don’t think it is too much to ask for the two arms of monetary policy to work together. Yet, Treasurers appear to enjoy having their secret APRA house price lever, so that they can wedge the RBA.
Hence, Jim “Chicken” Chalmers’ refusal to add APRA to the RBA review. Or, perhaps that’s just stupidity. I can’t tell amid his voluminous guff.
Either way, any external appointment at the RBA can only improve things so much while APRA is a freewheeling agent of monetary corruption.
Unless we bring in somebody that wants to merge the two.
