SUBJECTS: Global economy, executive remuneration, MYEFO
MARIUS BENSON:
Chris Bowen, good morning.
CHRIS BOWEN:
Good morning Marius.
BENSON:
Before I ask you about 'extreme capitalism', can I ask you about the markets; because there's been another pretty grim night on the markets after some good sessions. The Dow down 8, London down 7, Europe down – what's the answer there? Keep lobbying trillions at them?
BOWEN:
Well, this underlines the turbulence that we've come to expect in the markets and, as we keep saying, the only thing certain about this crisis is its fluidity.
It underlines the importance of the decisive actions that governments and independent regulators in Australia have had to take.
BENSON:
But the actions are pretty ineffective, to a significant extent, seemingly.
BOWEN:
Well, you are going to see, of course, continuing turbulence; and you are going to see continuing concerns about world growth figures and a world recession. And that will have a particular impact on world markets.
The responsibility of the government here, and our independent regulators here, is to take whatever action necessary to minimise that impact in the real economy in Australia – and that's exactly what we're doing.
BENSON:
Okay, the Prime Minister yesterday spoke about 'extreme capitalism'. He said 'greed is not good', excessive risk is also not good. How do you legislate against risk and greed?
BOWEN:
What the Prime Minister was doing was building on his remarks earlier in the year overseas, where he made the point that executive remuneration in the financial sector needs to be linked to performance – real performance, not risky performance, not accounting figures, not paper gains that don't translate to real gains for shareholders; and that we need to ensure that risky behaviour is not rewarded, overly, through the remuneration system; and there needs to be rules put in place, both in the international framework – the Basel framework – and in the domestic framework. And he indicated that Australia was interested in progressing that.
Now, that has been more of an issue overseas than it is in Australia but we need to be vigilant. We need to ensure there can't be a situation that arises where risky behaviour in Australia is rewarded through outrageous remuneration packages.
Most of Australia's financial situations are well run and their executives are well remunerated; but this is about linking risky behaviour to remuneration, and ensuring that shareholders aren't put at undue risk because chief-executives and other executive officers have undue rewards for that sort of risky behaviour.
BENSON:
But what is 'outrageous remuneration'? For example, the big four banks here – if you run one of those, you get maybe $8 or maybe $10 million, is that outrageous or is that fair?
BOWEN:
No, what the Prime Minister was doing, again, was pointing to the links between risky behaviour and outrageous remuneration. In Australia our financial institutions have been well run, are well capitalised and that's something that has seen us in good stead.
So this wasn't an attack on any particular financial institution or any particular remuneration yesterday. This was about ensuring that our rules going forward make sure that the capital in financial institutions, the capital strategies of financial institutions, are rewarded in an appropriate way; and that risky behaviour is not overly rewarded in a way which distorts actions which would be taken in the best interests of the depositors and shareholders.
BENSON:
Are you saying that this extreme capitalism happens in the world but doesn't happen in Australia?
BOWEN:
I'm saying it's been more of an issue around the world; clearly American financial institutions have had many more issues than Australian financial institutions have had.
But the prudent and responsible thing for the Australian Government to do is to ensure that our regulation is world's best practice and that's what the Prime Minister, in the decisive way that he has acted yesterday, in addition to the other decisive actions taken over recent days, has done.
BENSON:
So if you were for example, running Macquarie Bank in Australia at $25 million a year, you would have nothing to fear from the legislation that the Prime Minister envisages?
BOWEN:
Well, I am not going to get into individual institutions or individual managers, but what we are talking about is ensuring, that the remuneration structures adequately reflect a well run organisation across the board.
BENSON:
You say that you don't want to get into individuals, but the Prime Minister does seem to have tarred all banks with this brush of greed – that's how it has been reported this morning – are Australian banks greedy?
BOWEN:
I think if you look at the Prime Ministers remarks, that's not what he was doing. The Prime Minister - and you have got to remember that these are similar remarks that he made overseas earlier in the year which he expanded on yesterday - the Prime Minister was making the point, very clearly and appropriately, and this has been welcomed by commentators across the board I see this morning - that you need to link your remuneration with appropriate risk and growth strategies.
Now he wasn't saying in anyway that there is any particular institution in Australia, or any particular individual who needs to be targeted, but he was doing the responsible, prudent thing.
I notice for example in this morning's Financial Review that the Governance advisor of Risk Metrix said, I think it is excellent public policy. And that's reflective of the range comments from independent commentators across the board.
I note that Britain is talking about similar things – Gordon Brown overnight is talking about similar things to Kevin Rudd yesterday.
BENSON:
Can I just clarify, are you saying – is the Government saying – that there is no inappropriate pay going on in the financial world in Australia, its ok in Australia, it's not a problem here?
BOWEN:
I'm saying it's been much more of an issue overseas.
BENSON:
Is it a problem here at all?
BOWEN:
What I am saying is that the Prime Minister has, very appropriately and prudently, said that we need to ensure that all our regulatory mechanisms are in place to ensure that it doesn't happen in Australia.
Now as I say, I am not in the business of commenting on individual organisations or individuals, but by and large Australian financial institutions are well capitalised, well run, and we need to ensure that that continues to be the case.
BENSON:
Just quickly Mr Bowen can I ask you about this $10.4 billion stimulus package that was based on expectations that the Australian economy, in terms of unemployment and economic growth. The opposition says 'we'll back it but just us what the information is. Tell the Australian public what the outlook is'. Why not do that?
BOWEN:
Well we are and we will. And I can say Marius, there is more information out about these decisions that government take these days then there ever has been before. We have the Reserve Bank now being much more transparent; releasing its minutes; releasing more information.
The Prime Minister and Treasurer have made it very clear that the Mid Year Economic and Fiscal Outlook (MYEFO) will be released shortly, within the month, not at the end of the year or 5 o'clock on a Friday afternoon as has sometimes been the practice in the past, but in due time, to allow everybody to have a good look at the projections that are being provided to the Australian Government.
So governments receive advice all the time; the previous government, we, the Treasury, the other financial agencies receive that advice on a regular basis. There is a system in place for us to release that at the appropriate time and that's what we are doing.
I do make the point, that there is more information out there now then there was at anytime in the past, when you have much more transparency from the Reserve Bank. We'll make sure that the MYEFO process is appropriately transparent.
BENSON:
Mr Bowen, thank you very much.
BOWEN:
Always a pleasure.