Government cracks down on bankers behaving badly

Government cracks down on bankers behaving badly

The federal government has moved one step closer to introducing new accountability rules for senior bankers.

The Treasury has released a consultation paper for its proposed Banking Executive Accountability Regime (BEAR), which aims to increase the accountability of authorised deposit-taking institutions (ADIs), as well as their director and senior executives.

“The BEAR will provide greater clarity regarding their responsibilities and impose on them heightened expectations of behaviour in line with community expectations,” Treasury said.

“Where these expectations are not met, APRA [the banking regulator] will be empowered to more easily remove or disqualify individuals, ensure ADIs’ remuneration policies result in financial consequences for individuals, and impose substantial fines on ADIs.”

People need to have faith in their bankers

In recent years, there has been growing community concern about culture and behaviour in banks, according to Treasury’s consultation paper.

“There have been too many instances where participants have been treated inappropriately by banks and related financial institutions,” it said.

It is “imperative that participants have trust in the system” if it is to operate in an efficient, stable and fair way.

“It must operate at the highest standards and meet the needs and expectations of Australian consumers and businesses,” the consultation paper said.

“Participants need to be confident that financial firms will balance risk and reward appropriately and serve their interests.”

Who should be held accountable?

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One of the BEAR’s aims is to provide greater clarity about the responsibilities of the most senior bankers – but this poses challenges.

On the one hand, Treasury doesn’t want the net of responsibility to be cast so narrowly as to exclude people with effective responsibility for management and control.

On the other hand, it doesn’t want the net to be cast so wide that responsibility can be deflected. “The risk is that if everybody is responsible, nobody will be accountable.”

Anyone defined as an ‘accountable person’ will be held to “a heightened standard of responsibility and accountability” under the new regime.

Banks need to change their salary policies

In this year’s budget, the federal government made two announcements about senior bankers’ pay:

  • Between 40-60 per cent of an executive’s variable remuneration will be deferred for at least four years
  • APRA will have stronger powers to require lenders to change their remuneration policies when APRA believes they’re producing inappropriate outcomes

Treasury’s consultation paper said lenders should ensure that their payment structures did not incentivise a short-term focus or excessive risk-taking.

“Deferring variable remuneration is aimed at providing an appropriate period of time for risks to crystallise and for variable remuneration to be adjusted downwards as a result. The intention is to better align the realisation of risk with reward,” it said.

“A potential consequence of requiring variable remuneration to be deferred is that firms may adjust pay structures, shifting the balance of payment from variable to base remuneration.

“As a result, individuals may face reduced incentives to engage in, or create a culture of short term excessive risk taking.”

The BEAR’s next step

The Treasury has invited people to comment on its consultation paper, with submissions due by 3 August.

For the BEAR to become law, the government would then have to introduce new legislation, which would then have to be approved by parliament.

Given the timeframe, it is unlikely that any new rules would be introduced in 2017.

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The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

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A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

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As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

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A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

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Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

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A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

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How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

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Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

Can you set up a savings account online?

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Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.