1.      Reserve Bank control over deposit/investment and loan interest rates that it relied upon to cap deposit/investment rates from 1969 to 1980

Chapter 17 explains that the Banking Act 1959 as amended includes the below authority, under Section 50, which the Reserve Bank exercised to set both deposit/investment and loan interest rates upon commercial banks with diligence from 1969 until 1980:

 

 

BANKING ACT 1959 - SECTION 50

             "Control of interest rates:

             (1)   The Reserve Bank may, with the approval of the Treasurer, make regulations:

                     (a)     making provision for or in relation to the control of rates of interest payable to or by ADIs, or to or by other persons in the course of any banking business carried on by them;

                     (b)     making provision for or in relation to the control of rates of discount chargeable by ADIs, or by other persons in the course of any banking business carried on by them;

                     (c)     providing that interest shall not be payable in respect of an amount deposited with an ADI, or with another person in the course of banking business carried on by the person, and repayable on demand or after the end of a period specified in the regulations; and

                     (d)     prescribing penalties, for offences against the regulations, not exceeding:

                              (i)      if the offender is a natural person--a fine of $5,000; or

                              (ii)     if the offender is a body corporate--a fine of $25,000."

SMH article "Banks need reining in, but an act is not the way" by Professor Milind Sathye dated 22 Oct 2010 included:

        "Parliament has already conferred powers on the government to control interest rates, under section 50 of the Banking Act 1959."

          2.         Reserve Bank's responsibility to seek necessary financial information from the ADIs, or the major ADIs, in order to comply with (2)(a), (b) and (c) in Point 3. below

     Part 5—Miscellaneous, Section 26 'Persons to give Reserve Bank information' of The Payment Systems (Regulation) Act 1998 gives the Reserve Bank 'extensive powers' to gather information from a payment system or from individual participants."  "The Payments System Board was established by the Commonwealth Govt. in 1998 so as to best contribute to: .......... and promoting competition in the market for payment services."

    Red Book 2011 "Payment, clearing and settlement systems in Australia - 2011" notes:

          "The Payment Systems (Regulation) Act 1998 also gives the RBA extensive powers to gather information from payment system participants and operators."

Payments System Board Annual Report – 1999  Overview

"The Payments System Board of the Reserve Bank was established on 1 July 1998, with a mandate to promote the safety and efficiency of the payments system in Australia. This marked a watershed in governance of the payments system. The new regulatory regime, introduced in response to the Financial System Inquiry (the Wallis Committee), was an acknowledgment of the importance of the payments system to financial stability and of the scope to reap significant gains in efficiency.

*** The Board has been given the backing of strong regulatory powers, unique among central banks. At the same time, the Government has indicated its preference for a co-regulatory approach and it has balanced the Board's powers with safeguards for private-sector operators.

To date, the Board's strategy has been to treat its powers as ‘reserve powers’ to be exercised if other methods of persuasion and implementation prove to be ineffective. Its main priority over its first year has been to undertake a detailed stocktake of the safety and efficiency of the Australian payments system, as the basis for determining an initial work program."

The Reserve Bank's Submission to the Financial System Inquiry - March 2014 noted:

"In 1998, the government implemented a range of reforms that were generally in line with the broad structure and powers recommended by the Wallis Committee. The responsibility for oversight of the payments system was entrusted to the PSB.  The PSB’s responsibilities and powers are set out under four key pieces of legislation:
*        Reserve Bank Act 1959,
*        Payment Systems (Regulation) Act 1998 (the PSRA),
*        Payment Systems and Netting Act 1998 (the PSNA), and
*        Part 7.3 of the Corporations Act."

"The Reserve Bank’s policy-making role is one of the four different roles of the Bank in the payments system (see ‘Box 8A: The Roles of the Reserve Bank in the Payments System’).  The Reserve Bank is the principal regulator of the payments system through the PSB.  Payments Policy Department has responsibility for providing advice to the PSB."

"The Payment Systems (Regulation) Act 1998 gives the Reserve Bank of Australia 'extensive powers' to gather information from a payment system or from individual participants."  "The Payments System Board was established by the Commonwealth Govt. in 1998 so as to best contribute to: .......... and promoting competition in the market for payment services."

Below is an extract of part of 'Box 8A : The Roles of the Reserve Bank in the Payments System’ referred to just above:

The PSB and the senior management of the Bank take very seriously the possibility of any perception that the Bank’s policy and operational roles may be in conflict, especially since this could undermine public confidence in the regulatory and policy process. Accordingly, the Bank has policies in place for avoiding conflicts and addressing them when they do occur. The main way this is achieved in the Bank’s organisational structure is through the separation of Payments Policy Department from the operational departments. The PSB has formally adopted a policy on the management of conflicts of interests, compliance with which is audited each year.

 

***  The Reserve Bank of Australia's -

            A.      powers to gather financial information from ADIs; and

            B.      responsibilities to 'inter alia' "best contribute to.......... the economic prosperity and welfare of the people of Australia",

  are "unique among central banks" and more extensive/inflexible than the -

  1.       Bank of England, that was not nationalised as Britain's central bank until 1946, which is a corporation wholly owned by the UK government - the 'Corporate governance: Board responsibilities' – SS5/16 (Short form) focus on the Corporates it regulates with no apparent obligation to best contribute to the peoples of Britain; and

  2.       U.S. Federal Reserve that was established as the United States' central bank in 1913 has the below obligation to " research to increase understanding of the impacts of financial services policies and practices on consumers and communities." in the below item 7. "Promoting Consumer Protection and Community Development.":

                       "The Federal Reserve advances supervision, community reinvestment, and research to increase understanding of the impacts of financial services policies and practices on consumers and communities."

        3.        Reserve Bank's "catch-all" responsibility, pursuant to the below Reserve Bank Act (1959), Part II, Section 10 ''Functions of Reserve Bank Board", to determine the policy of the Bank in relation to any matter, other than its payments system policy, and to take such action as is necessary to ensure 'inter alia' (2)(c) below:

             (1)   Subject to this Part, the Reserve Bank Board has power to determine the policy of the Bank in relation to any matter, other than its payments system policy, and to take such action as is necessary to ensure that effect is given by the Bank to the policy so determined.

             (2)   It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998, the Payment Systems and Netting Act 1998 and Part 7.3 of the Corporations Act 2001, are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

                    (a)        the stability of the currency of Australia;

                    (b)        the maintenance of full employment in Australia; and

                    (c)        the economic prosperity and welfare of the people of Australia.                         

    Reserve Bank of Australia - Our Role (and the 2nd paragraph in Chapter 5) establishes that -

    *           The Payment Systems (Regulation) Act 1998 gives the Reserve Bank of Australia extensive powers to gather information from a payment system or from individual participants.

    *           the Reserve Bank Board’s obligations with respect to monetary policy are laid out in Sections 10(2) and Section 11(1) of the Act. Sections 10(2) of the Reserve Bank Act 1959, which is often referred to as the Bank’s ‘charter’, says:

    ‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

1. the stability of the currency of Australia;

2. the maintenance of full employment in Australia; and

3. the economic prosperity and welfare of the people of Australia.’

4.        The PSB is responsible for promoting competition in the market for payment services, consistent with the overall stability of the financial system

          The RBA is the principal regulator of the payments system through the PSB

           This responsibility has broadened the Bank's traditional focus on the high-value wholesale payment systems which underpin stability, to encompass the retail and commercial systems where large transaction volumes provide scope for efficiency gains

           "Designation is the first step in 'establishing standards' and 'access regimes' for a payment system to deal with public interest issues."

Below are extracts from Reserve Bank of Australia Bulletin  -  July 1998 - Australia’s New Financial Regulatory Framework that chronicles the Reserve Bank's powers, set out in the Payment Systems (Regulation) Act 1998, that allow the Reserve Bank to undertake more direct regulation of ‘designated’ payments systems to –

"... promote competition in the market for payments services, consistent with the overall stability of the financial system..." when it judges it to be "in the public interest" which may involve the imposition of access rules or operating standards for participants in such systems:

"The new Payments System Board is responsible for the Bank’s payments system policy, the objectives of which are:

•     controlling risk in the financial system arising from the operation of the payments system;

•     promoting the efficiency of payments systems; and

•     promoting competition in the market for payments services, consistent with the overall stability of the financial system.

The Bank’s powers in this area, set out in the Payment Systems (Regulation) Act 1998, allow it to undertake more direct regulation of ‘designated’ payments systems when it judges it to be in the public interest. This may involve the imposition of access rules or operating standards for participants in such systems. The Act also provides a framework for regulation of purchased payment facilities, such as travellers cheques and stored-value cards."

"The Payments System Board has just released its 1999 Report outlining its activities during its first year.  The Board's strategy has been to treat its extensive powers as ‘reserve powers’ to be exercised if other methods of persuasion and implementation prove to be ineffective.  Where it can, it would much prefer to rely on information-gathering and consultation with industry participants to meet its objectives.  This is the co-regulatory approach envisaged by the Government."

The PSB's mandate is set out in the Reserve Bank Act 1959.

The PSB is responsible for -

*           determining the RBA's payments system policy in a way that will best contribute to controlling risk in the financial system;

*           promoting the efficiency of the payments system; and

*           promoting competition in the market for payment services, consistent with the overall stability of the financial system.

2. The Reserve Bank Act 1959 establishes the Payments System Board. Section 10B(3) of the Act states:

   1. 'It is the duty of the Payments System Board to ensure, within the limits of its powers, that:

      1. the Bank's payments system policy is directed to the greatest advantage of the people of Australia; and

      2. the powers of the Bank under the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998 are exercised in a way that, in the Board's opinion, will best contribute to:

         1. controlling risk in the financial system; and

         2. promoting the efficiency of the payments system; and

         3. promoting competition in the market for payment services, consistent with the overall stability of the financial system…'.

While the PSB determines the RBA's payments system policy, the powers to carry out those policies are vested in the RBA. These powers are set out in three separate Acts, 6 of which the centrepiece is the Payment Systems (Regulation) Act 1998, under which the Bank may:

*          "designate" a particular payment system as being subject to RBA regulation.  Designation is simply the first of a number of steps the Bank must take to exercise its powers;

*           determine rules for participation in a payment system, including rules on access for new participants;

*           set Standards for safety and efficiency for any payment system. These may deal with issues such as technical requirements, procedures and performance benchmarks; and

*           arbitrate on disputes in that system over matters relating to access, financial safety, competitiveness and systemic risk, if the parties concerned so wish.

The Payment Systems (Regulation) Act 1998 also gives the RBA extensive powers to gather information from payment system participants and operators.

In 1998, the government implemented a range of reforms that were generally in line with the broad structure and powers recommended by the Wallis Committee. The responsibility for oversight of the payments system was entrusted to the PSB.  The PSB’s responsibilities and powers are set out under four key pieces of legislation:
*    Reserve Bank Act 1959,
*    Payment Systems (Regulation) Act 1998 (the PSRA),
*    Payment Systems and Netting Act 1998 (the PSNA), and
*    Part 7.3 of the Corporations Act.

The Bank’s policy-making role is one of the four different roles of the Bank in the payments system (see ‘Box 8A: The Roles of the Reserve Bank in the Payments System’).   The RBA is the principal regulator of the payments system through the PSB.  Payments Policy Department has responsibility for providing advice to the PSB.

The Government's intent was that the Bank would treat these powers as 'reserve powers', to be exercised if other means of promoting efficiency, competition and stability proved ineffective. Accordingly, the Government built considerable flexibility into the new regulatory regime. Under this co-regulatory approach, the private sector continues to operate its payment systems and may enter into cooperative arrangements, which may be authorised by the ACCC under the Competition and Consumer Act 2010. However, if the Bank believes that there may be benefits in exercising its formal powers in a system that it oversees to improve access, efficiency or safety, it may, as a first step, invoke its powers to designate that system. It may then decide, in the public interest, to set an Access Regime or impose Standards for that system. In doing so, the Bank is required to take into account the interests of all those potentially affected, including existing operators and participants. Full public consultation is required and the Bank's decision-making processes are subject to judicial review.7

 

 

 

"Increasingly, central banks are being given explicit authority for payments system safety and stability, but the Board's legislative responsibility and powers to promote efficiency and competition in the payments system are unique. This responsibility has broadened the Bank's traditional focus on the high-value wholesale payment systems which underpin stability, to encompass the retail and commercial systems where large transaction volumes provide scope for efficiency gains.

The Bank's wide-ranging powers in the payments system are set out in the Payment Systems (Regulation) Act 1998.  It may:

• 'designate' a particular payment system as being subject to its regulation. Designation has no other effect; it is simply the first of a number of steps the Bank must take to exercise its powers - ("Designation is the first step in establishing standards and access regimes for a payment system to deal with public interest issues.")  - "Designation of a payment system occurs only after substantial consultation with participants and after voluntary arrangements have been exhausted.";
• determine rules for participation in that system, including rules on access for new participants. Since access is inextricably linked to efficiency the Bank works closely with the Australian Competition and Consumer Commission (ACCC) (see below);
• set standards for safety and efficiency for that system. These may deal with issues such as technical requirements, procedures, performance benchmarks and pricing;
• direct participants in a designated payment system to comply with a standard or access regime; and
• arbitrate on disputes in that system over matters relating to access, financial safety, competitiveness and systemic risk, if the parties concerned wish.

The Payment Systems (Regulation) Act 1998 also gives the Reserve Bank of Australia (RBA) extensive powers to gather information from a payment system or from individual participants."

 

 

 

 

Relying upon Clause 8 of the Payment System (Regulation) Act 1998, the Reserve Bank may, in writing, determine standards to be complied with by participants in a designated payment system if it considers that determining the standards is in the public interest.

3. The authority to designate a payment system is conferred on the Bank by Section 11 of the Payment Systems (Regulation) Act 1998. The Act states that 'The Reserve Bank may designate a payment system if it considers that designating the system is in the public interest'. Section 8 of the Act defines the meaning of public interest:

   1. "In determining, for the purposes of this Act, if particular action is or would be in, or contrary to, the public interest, the Reserve Bank is to have regard to the desirability of payment systems:

      1. being (in its opinion):

         1. financially safe for use by participants; and
         2. efficient; and
         3. competitive; and
      2. not (in its opinion) materially causing or contributing to increased risk to the financial system.

             The Reserve Bank may have regard to other matters that it considers are relevant, but is not required to do so."

         5.      Determine Standards to 'inter alia' re-cap Credit Card interest rates for 'public interest issues':

1.  'Designated' Credit Card Schemes in Australia on 12 April 2001, relying on Division 2, Section 11 of the Payment Systems (Regulation) Act 1998

2.  'Impose an Access Regime' on 23 Feb 2004 on each of the three designated credit card schemes in Australia (Visa, MasterCard and Bankcard) relying upon Division 2, Section 12 of the PAYMENT SYSTEMS (REGULATION) ACT 1998; and

3.  Determining 'Standards' pursuant to Division 4, Section 18 of the Payments System Regulation Act 1998