The Australian Prudential Regulation Authority inquiry, which followed an embarrassing money laundering scandal, has uncovered a culture of complacency and a board that failed to provide adequate oversight.
“It found there was a complacent culture, dismissive of regulators, an ineffective board that lacked zeal and failed to provide oversight,” Morrison said in Canberra today.
The Treasurer also pointed to “a lack of accountability and ownership of key risks by senior executives, a remuneration framework that had no bite”.
“While CBA is a sound financial institution … that rap sheet that I’ve just read out from APRA is very damning,” he said.
“The report, I think, is required reading not only for every financial institution in this country but, frankly, it should be the next item on the agenda of every single board meeting in this country regardless of whether you’re a bank or not.
“It goes to the heart of what responsibilities of board directors are.”
Asked what the CBA board should do, Morrison said a number of board members and executives had already gone.
“My understanding is there will be others who will be leaving and that’s what I expect to happen,” he said.
According to APRA, “CBA’s continued financial success dulled the senses of the institution” particularly in relation to the management of non-financial risks.
CBA has now agreed to an APRA-enforceable remedial action plan and to carry an additional $1 billion in regulatory capital on its balance sheet.
APRA chairman Wayne Byres said CBA’s governance, culture and accountability practices needed considerable improvement.
“CBA has itself identified and begun taking steps to address many of these issues,” he said.
“But there is much to do and a risk that the same issues, which have led to the need for the inquiry, undermine the bank’s efforts to comprehensively and effectively respond to the recommendations.”
Asked what people should make of the big banks, which enjoyed the protection of taxpayers during the global financial crisis via a government guarantee, Morrison said Australians should be as disappointed as he is.
But he stressed the government was taking action, citing the “permanent” bank levy included in last year’s budget.
The levy is expected to raise $16 billion by the time the government’s planned corporate tax cuts have through the economy.
WHAT APRA THINKS ABOUT AUSTRALIA’S BIGGEST BANK
“CBA’s continued financial success dulled the senses of the institution”
“Senior leadership was slow to recognise, and address, emerging threats to CBA’s reputation. The consequences of this slowness were not grasped”
“A widespread sense of complacency has run through CBA, from the top down”
“CBA was desensitised to failings with customers”
“CBA has been reactive – rather than proactive and pre-emptive – in dealing with risks”
“CBA turned a tin ear to external voices and community expectations about fair treatment”
“Good intent has been too readily used to excuse poor risk outcomes”
“Complacency and reactivity led to a sense of ‘chronic ease’ in CBA.”
“Various failings have culminated in a dilution of the ‘voice of risk’ and the ‘customer voice'”
“CBA has ‘fallen from grace'”
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