Comparison of the Reserve Bank of Australia and Westpac Banking Corporation - Assignment Example

Comparison of the Reserve Bank of Australia and Westpac Banking Corporation 29 May Report EXECUTIVE SUMMARY The Reserve Bank of Australia (RBA) and Westpac Banking Corporation are public sector and private sector companies respectively. They are managed differently and have different functions. One of the functions of RBA is banking supervision and so the organization works closely with Banks including Westpac. RBA reports to Parliament while Westpac reports to its shareholders. In terms of corporate governance Westpac separates the post of Chairman from that of CEO while in the case of RBA the Governor is the CEO and Chairman of the Bank. INTRODUCTION Private sector and public sector organizations differ in the way they are managed and operated. The way they are structured helps to facilitate goal achievement. This report compares the Reserve Bank of Australia (RBA) with Westpac Banking Corporation (Westpac). Reserve Bank of Australia RBA is Australia’s central bank. The objectives of the Bank are set out in its policies – ensuring that the monetary and banking policies are advantageous to the people of Australia (Reserve Bank of Australia 3). In so doing the policies of the bank are designed to ensure stability of Australia’s currency, facilitate full employment; and contribute to economic prosperity and welfare of the Australian people. RBA has a Governor and Deputy Governor as well as a number of boards, committees, groups and departments. They all have their relevant functions which facilitate the proper management of the Bank. The structure of the organization is shown in the organization chart in Appendix 1. The Boards include the Reserve Bank Board and the Payments System Board. The Reserve Bank Board has responsibility for monetary and banking related polices while the Payments Systems Board is responsible for polices relating to the payments system. The Governor is the Chairman for both Boards with the Deputy Governor as Deputy Chairman for the Reserve Bank Board. The committees of RBA include the Executive Committee; the Audit Committee; the Remuneration Committee; and the Risk Management Committee. The forum for discussions among heads of functional departments and the Governor and Deputy Governor is provided by the executive committee. The audit committee is chaired by a non-executive board and this should help facilitate the level of independence that is required of members of this committee. The Remuneration Committee is also a committee of the Reserve Bank Board and is drawn from the non-executive members of that Board. The Risk Management Committee is chaired by the Deputy Governor and its responsibility is that of identifying and managing those risks that are not policy related, across the bank. The Groups consists of the Banking and Payments Group; the Corporate Services; the Currency; the Economic; the Financial Markets; and the Financial System Groups. All of these groups have one or more departments that fall under their remit. They provide a range of services for institution. The Banking and Payments Group consists of two departments – the Banking Department and the Payments Settlements Department. The function of the Banking Department includes the provision of a special range of banking and registry services to the departments of the Australian Government, overseas central banks and official institutions. The Payments and Settlements Department on the other hand has the responsibility of settling high valued payments and inter-bank obligations which result ‘from the conduct of Exchange Settlement Accounts and’ the RBA’s own trading activities. Other responsibilities of the Bank and Settlement Department include the operations of the Reserve Bank Information and Transfer System (RITS) which is Australia’s real time gross settlement (RTGS) system. RBA’s Corporate Services Group consists of the Facilities Management Department; the Financial Administration Department; and the Systems and Technology Department (Reserve Bank of Australia 116 - 118). The Group also includes a unit – the Risk Management Unit. Its broad function is the provision of services to other sections of RBA. The Facilities Management Department as the name implies manages the facilities of the bank including RBA’s properties, ensure the security of the banks assets and other services associated with the management of these facilities. The Financial and Administration Department is concerned with payroll preparation and other associated activities including superannuation. The preparation of RBA’s financial and management accounts also falls under the control of this department. The Systems and Technology Department has responsibility for the management of RBA’s computer and communications systems including its development and planning. The Risk Management Unit ensures that there are clear lines of demarcation in relation to responsibilities and that there is a level of consistency in the guidelines for defining, assessing, monitoring and controlling risk throughout RBA. The management of RBA’s operations in financial markets, ensuring institutions complies with investment and trading procedures, accuracy in the measurement of portfolio the performance; lies with this department. The head of this Unit reports to the Risk Management Committee and to the Chief Financial Officer (CFO). The Currency Group has responsibility for the issuing of bank notes. The Chairman for this Group is the Deputy Governor. The Group not only issues bank notes but is responsible for the design - including security features, of these notes as well as ensuring that there is adequate supply of good quality authentic notes to meet demand (RBA 116 – 118). The Economic Group has responsibility for analyzing various trends in the economy both locally and overseas as well as preparing forecasts and carrying out research that serves as a determinant of monetary policy. This Group consists of the Economic Analysis Department and the Economic Research Department. The Economic Analysis Department performs the role of monitoring and forecasting economic trends both internationally and locally. The Department provides advice relating to developments and monetary policy to the Governor and the Board. This group also provides regular publications and carries out applied research in areas relating to RBA’s operations. This Group maintains constant contact with analysts and financial institutions as well as various external bodies. The Economic Research Department carries out research of a longer term nature that is relevant to formulating monetary policy and the operations of financial markets and publishes the results as discussion papers. The other functions that this Department includes the administration of a library service that facilitates research. There is also a total of four State Offices that falls under the Economic Group. These offices cover Queensland; South Australia and the Northern Territory; Victoria and Tasmania; and Western Australia. The functions of these Offices are to analyze economic conditions in the relevant regions and communicate with firms and agencies in the public and private sector in these regions. The Economic Research Department publishes a quarterly bulletin with various articles including applied research and on economic and financial developments (RBA 116 - 118). The Financial Markets Group has responsibility for the implementation of RBA’s operations in local and foreign exchange markets. The Group monitors developments in financial markets and coordinates RBA’s relationships with international institutions. The Group carries out its functions through the Domestic Markets Department and the International Department. The Domestic Department has responsibility for the local money and bond markets and analyzes the developments in the local financial markets. This department provides regular advice to the Governors and the Board on these issues. The International Department has responsibility for foreign exchange operations, dealing with investment of international reserve holdings of gold and foreign exchange. Regular advice is also provided by the Department to the Governor and the Board. An important area of responsibility for the Group is the maintenance of relationship between the RBA and major international institutions. The RBA has representatives in London and New York and their functions fall under this group. The London office has responsibility for Europe and communicates with the Bank for International Settlements (BIS) and the Organization for Economic Cooperation and Development (OECD) (RBA 116 – 118). The Financial System Group acts as a support for the regulation of the payments system and is responsible for stabilizing the financial system. The Group has two departments – the Payments Policy Department and the Financial Stability Department. The Payments Policy Department has responsibility for the development and implementation of the policy related to the payments system. Advice on improvements relating to the safety and efficiency of the payments system are provided to the Payments System Board from this department, after careful analysis. Responsibility for overseeing Australia’s clearing settlement facilities representation on the International Committee on Payment and Settlement Systems (CPSS) is also provided through this department. The Financial Stability Department analyzes how developments in the macro-economy, financial markets, and the financial sector affect the stability of the financial system. The department provides advice to the Governor and the Board on these matters and provides support for RBA’s representation on various bodies including the Council of Financial Regulators, the Financial Stability Board and the Basel Committee on Baking Supervision. An important role of this department is to produce the Financial Stability Review (RBA 116 – 118). Other important departments of RBA include Audit, Human Resources, Information, and Secretary’s Departments. The Audit Department has responsibility for appraisal of RBA’s activities, functions and operations. The role of the department is to ensure that internal controls are in place and are operating in an effective manner. The person in charge - Head of Audit, reports to the Chairperson of the Audit Committee. The Human Resources Department is concerned with attracting and retaining high quality staff and so tailors its policies towards that end. The information Department deals with queries from the public and various media. The Department also prepares and publishes information through several publications as well as RBA’s website. The Department manages the Banks document management system, an archive and the Museum of the Australian Currency Notes (RBA 116 – 118). RBA has a wholly owned subsidiary – Note Printing Australia Ltd (NPA) which has responsibility for printing currency notes, passports and other security documents for Australia and also for export (RBA 116 – 118). The company has its own Board and carries out research in the aforementioned areas. Westpac Banking Corporation Westpac carries out operations in both Australia and New Zealand. The organization represents one of the four major banking organizations in Australia and one of the largest in New Zealand. The company provides a variety of banking services including retail banking, ‘business and institutional banking and wealth management services’ (Westpac 8). The Structure of the Bank differs from RBA in that it is not as complex. Westpac has a Chairman, a Chief Executive Officer (CEO). The bank has a number of divisions of which the newly created Australian Financial Services division has three – Westpac Retail & Business Banking; St. Georges Banking Group, BT Financial Group, Westpac Institutional Bank, and Westpac New Zealand (Westpac 3 - 4). Other divisions include Pacific Banking, Group Services, Treasury, and Core Support. The Pacific Banking Division is engaged in the provision of services to seven Pacific Island Nations – Fiji, Papua New Guinea, Vanuatu, Cook Islands, Tonga, Solomon Islands and Samoa. Group Services deals with technology related aspects of banking, general banking operations, and facilities services. The Treasury division is concerned with managing the Group’s interest rate risks and funding requirements. The Core Support division consists of finance, risk management and human resources which represents centralized functions. The organization chart which provides a clearer picture of the structure of the Westpac Banking Corporation is provided in Appendix 2. COMPARISON The Structure of the two organizations is different since they carry out different functions. However, some of the same departments such as human resources, finance, audit and risk management exists in both institutions and are also centrally located at the head office. Similar group services exist in both institutions. Additionally, Westpac Banking Corporation has a number of committees which report to the Board which also has an executive and a non-executive arm like RBA. The State Offices of RBA only deals with the collection information in their respective regions while the general aspects of Westpac’s operations including retail, business and investment banking is carried out in most of its divisions. Corporate Governance Corporate governance is the systems, principles and processes by which companies are governed (Thomson). The Governor of RBA is the Chairman of the Board as well as the CEO. Westpac on the other hand separates the two functions as the CEO receives information from the support teams in the core support areas at head office. They provide information on the divisions in order to keep the CEO and the Board abreast of all the company’s operations. Both organizations are structured differently for a reason. This is to ensure that they achieve their goals in an efficient and effective manner. In fact, both organizations are social entities that are directed by the goals that have been set for them, and they are deliberately structured and coordinated with links to the external environments (Daft 12). The Reserve Bank meets the description of a commonwealth authority and so the Directors in this case the Governor is charged with the responsibility of preparing the Annual Report which is to be presented to Parliament (Reserve Bank of Australia 13; Office of Parliamentary Counsel Part 3 Sect 7). No external independent authority is required to express an opinion on the financial statements contained in the annual report in the case of RBA. In fact, the Governor and Deputy Governor indicate that the report gives a true and fair view of RBA’s operations (Reserve Bank of Australia 71). However, in the case of Westpac Banking Corporation this is a requirement. Westpac Banking Corporation is a public company which is listed on the Australian and New York Stock Exchange and so the annual report has to be addressed to the company’s shareholders (Westpac 281). In the case of RBA the letter of transmittal relating to the report is addressed to The Deputy Prime Minister for presentation to Parliament. The annual report for RBA complies with International Financial Reporting Standards and has been prepared in accordance with Australian Accounting Standards. The financial statements and the notes are general purpose financial report (Reserve Bank of Australia 78). CONCLUSION Both organizations serve different functions. However, they are both accountable to someone. They operate in accordance with national and international guidelines and have things in place to ensure that the reports prepared are reliable. Appendix 1 - Organization Structure – RBA Appendix 2 Organization Structure – Westpac Banking Corporation Source: Adopted from Westpac Banking Corporation Annual Report 2012 Works Cited Daft, Richard L. Organization Theory and Design. OH, USA: South Western Cengage Learning. 2010. Print Reserve Bank of Australia. Reserve Bank of Australia Annual Report 2012. Web. 20 May 2013. http://www.rba.gov.au/publications/annual-reports/rba/2012/pdf/2012-report.pdf Thomson, Lisa M. What is corporate governance? Economic Times 18 Jan 2009. Web. 23 May 2013. Westpac. Westpac Group Annual Report 2012. 2012. Web. 20 May 2013. Office of Parliamentary Counsel. Commonwealth Authorities and Companies Act 1997 – Sect 9. 2012. Web. 23 May 2013. Read More