29 August 2011

Trust surveys over the last few years show that bankers have lost the reputation for trustworthiness traditionally afforded to them. In the US confidence is down to the 20% level. In the most recent UMR survey in New Zealand, investment bankers ranked as the least respected occupation, beneath politicians and real estate agents.

Perceptions will be influenced by the global financial crisis and the opportunist behaviour disclosed by numerous investigations into the part played by banks. This won’t be helped by major international banks paying staff bonuses at levels viewed as incredible by ‘ordinary’ people whose lives have been disrupted by international economic uncertainty.

But are central banks different?

Corporate ethics of Australia’s Reserve Bank may be as dubious as any bank. This is evident in a report about the Reserve Bank board members’ awareness of corrupt practices at its subsidiary note printing companies. A report this week disclosed that the board knew about bribes (ultimately of nearly $50 million) to obtain new business manufacturing plastic banknotes. The Reserve Bank made sure that it avoided the publicity that befell the Australian Wheat Board when it was found to be involved in evading Iraqi oil sanctions. The board made no referral to the Police about the bribes although internal inquiries were initiated.

After extensive media coverage earlier this year, the former Reserve Bank Governor commented that he was pretty sure that there was no awareness of bribes being paid by subsidiaries. This tests belief now that those subsidiaries have indicated that they will be pleading guilty to corruption charges!

The New Zealand Reserve Bank has a unique position in the machinery of government. It is part of the State services, although not subject to the State Services standards of integrity and conduct. Its employees, as part of the State sector are required by the Cabinet Manual, to “… act with a spirit of service to the community and meet high standards of integrity and conduct in everything they do. In particular, employees must be fair, impartial, responsible, and trustworthy.”