Reserve Bank of Australia Annual Report 2022
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Also available at the Australian Government's Transparency Portal.
Contents
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Part 1: About the Reserve Bank
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The Reserve Bank is an independent central bank, accountable to the Parliament of Australia. The Bank has two boards: the Reserve Bank Board, which has responsibility for monetary and banking policy; and the Payments System Board, which has responsibility for payments system policy.
Some aspects of the Reserve Bank’s governance and accountability arrangements (including the Reserve Bank Board structure) are being examined as part of an independent review of Australia’s monetary policy arrangements. The Review of the Reserve Bank will exclude the Bank’s payments, financial infrastructure, banking and banknotes functions. The Treasurer has confirmed that all existing arrangements will remain in place until the Review is completed in March 2023.
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The Reserve Bank Board comprises nine members: the Governor; Deputy Governor; Secretary to the Australian Treasury (ex officio member); and six other non-executive members appointed by the Treasurer. Further to the legislative requirements, and in recognition of their responsibility to uphold the integrity of the Board and the Reserve Bank, members have adopted a Code of Conduct, which is published on the Bank’s website.
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The Payments System Board comprises up to eight members: the Governor; a representative of the Reserve Bank (currently, the Deputy Governor; a representative of the Australian Prudential Regulation Authority (currently the Chair); and up to five other non-executive members appointed by the Treasurer. Further to the legislative requirements, and in recognition of their responsibility to uphold the integrity of the Payments System Board and the Reserve Bank, members have adopted a Code of Conduct, which is published on the Bank’s website.
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The Reserve Bank is managed by the Governor, Philip Lowe, and the Deputy Governor, Michele Bullock. It has five operational groups – Business Services Group, Corporate Services Group, Economic Group, Financial Markets Group and Financial System Group – and six supporting departments.
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Part 2: Performance
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The Reserve Bank operates in domestic and international financial markets to achieve its policy objectives. These operations include implementing the monetary policy decisions of the Reserve Bank Board, facilitating the smooth functioning of the payments system, managing the nation’s foreign exchange reserve assets and providing banking services to clients (mainly the Australian Government, as well as foreign central banks).
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The Reserve Bank provides banking and payment services to meet the needs of the Australian Government and to support an efficient and stable Australian financial system. These services support the government’s measures to provide financial assistance to Australian households and businesses, including during the COVID-19 pandemic and natural disasters, by ensuring that payments are processed quickly and reliably. In addition to operating Australia’s real-time gross settlement (RTGS) system, the Bank operates national infrastructure to support the settlement of real-time payments by households and businesses on a 24/7 basis. These services provide the Australian Government with access to 24/7 payment capabilities, and are consistent with the Bank’s strategic goal of providing innovative, high-quality banking and payment services to the Australian Government, its agencies and, in turn, the Australian public.
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The Reserve Bank is responsible for producing and issuing Australia’s banknotes. In this role, the Bank ensures that banknotes in circulation are of high quality and that the threat of counterfeiting is low. In late 2021, the Bank announced it was conducting a review of banknote distribution arrangements to determine what changes may be required to ensure that distribution is effective, efficient, sustainable and resilient – both now and into the future.
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The Reserve Bank participates in international efforts to address the challenges facing the global economy and financial system, and improve the international financial architecture. It does so through its membership of global and regional forums and its close bilateral relationships with other central banks. Over the past year, the COVID-19 pandemic, the war in Ukraine, inflationary pressures and macroeconomic policy settings have been at the forefront of international discussions on the global economic and financial outlook. The year has also seen continued international efforts to progress work on a range of issues, including digital currencies, risks arising from non-bank financial intermediation, cross-border payments and climate-related risks.
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The Reserve Bank is committed to being open, transparent and accountable in all its communication. The Bank’s staff across Australia work to understand community priorities and concerns and, in turn, explain the Bank’s policies and decisions. The Bank engages with the community in a range of ways, including via a longstanding regional and industry liaison program and a public education program. It consults with businesses, consumer groups and payments industry participants on issues in payments policy. The Bank communicates its policy decisions, and the context in which these are made, through publications and speeches. The Bank participates in parliamentary hearings and responds to public enquiries. It supports academic research, publishes a broad range of statistics and operates a museum where visitors can discover the history of Australia’s banknotes and economic development.
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Part 3: Management
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This chapter outlines the management structure of the Reserve Bank and describes the Bank’s approach to managing its finances, technology, data and facilities. The Bank is committed to discharging its policy and operational responsibilities in an efficient manner and invests in its people, technology, data, facilities and related capabilities essential for the Bank to achieve its strategic objectives. Subsequent chapters provide further information on the Bank’s people, risk management and earnings.
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The Reserve Bank seeks to attract, develop and retain high-quality people with the technical skills and capabilities to achieve the Bank’s strategic objectives, and behaviours that are consistent with the Bank’s values.
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Effective risk management is an integral element in the Reserve Bank achieving its strategic objectives and meeting its policy responsibilities. Accordingly, a risk and compliance management framework underpins effective decision-making in the Bank, while allowing enterprise-wide and emerging risks to be identified and managed in a way that is consistent with the Bank’s risk appetite. This framework is overseen by the Risk Management Committee.
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In 2021/22, the Bank recorded an accounting loss of $36.7 billion. While underlying earnings were positive, large unrealised valuation losses were recorded on the bonds purchased as part of the Bank’s economic support package during the pandemic. The large accounting loss means there will be no dividend paid to the Australian Government this year. Of the $36.7 billion loss, $15.9 billion has been absorbed by the unrealised profits reserve (UPR) and the Reserve Bank Reserve Fund (RBRF). The remainder ($20.8 billion) is being recorded as ‘accumulated losses’ on the Bank’s balance sheet. These accumulated losses exceed the Bank’s other reserves, so that the Bank was in a negative equity position of $12.4 billion as at 30 June 2022.
The Reserve Bank Board’s judgement is that negative equity does not affect the Bank’s ability to operate effectively or perform its policy functions, but that it is important that the Bank’s equity is restored over time. This restoration can be achieved through the Bank retaining its profits over the years ahead. Accordingly, the Board has communicated its strong expectation to the Australian Government that future distributable earnings would be applied, in full, to offsetting the accumulated losses and restoring the balance of the RBRF to the Board’s target. In response, the Treasurer has endorsed the Board’s general approach to restoring the equity position over time, while noting any retention of earnings remains at the discretion of the Treasurer in terms of the Reserve Bank Act 1959. The Treasurer also supported the Board’s judgement that the Bank will be able to continue to operate effectively, even in the event of further losses over the coming few years. Given that there is a credible path to restoring the Bank’s capital, the Board has not sought a capital injection from the government.
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Part 4: Financial Statements
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Part 5: Indexes
ISSN 1448–5303 (Print)
ISSN 1448–5192 (Online)