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Button must explain comments about State Bank problems: Hill



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MEDIA RELEASE SENATOR ROBERT HILL LEADER OF THE OPPOSITION IN THE SENATE SHADOW MINISTER FOR FOREIGN AFFAIRS Sunday, November 22

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The Leader of the Opposition in the Senate, Senator Robert Hill, today called on Senator Button to explain what appear in the light of the State Bank of South Australia (SBSA) Royal Commission Report to' have been misleading and contradictory comments made by him about the Bank's financial difficulties.

On February 20, 1991, Senator Button told the Senatei

"...the magnitude of the State Bank's problems began to emerge progressively as its end December accounts were being prepared. The Reserve Bank was informed of this during January 1991 and immediately engaged in discussions with the bank and its owner on measures to restore its

capital and to maintain its viability."

Yet, the State Bank Royal Commission Report, released last week, says on Page 380 that*

"In August 1990, a Reserve Bank position paper on the seemingly perilous and worrying plight of the State Bank was directed to the Governor and the Deputy Governor of the Reserve Bank."

"Far from emerging 'progressively', it appears that as early as August 1990 the Reserve Bank was aware of the 'perilous and worrying plight of the State Bank'," Senator Hill said.

"And, according to the Reserve Bank, its concerns were to be taken up at a major consultation between the Reserve Bank and the SBSA on August 29, 1990.

"To the extent that Senator Button's answer in the Senate suggested that the Reserve Bank was not aware of serious problems before January 1991, the Minister's answer seems to be wrong.

"The Opposition will press Senator Button as to the source of his Information for the answer he gave on February 20.

"The Opposition will also seek information as to whether the concerns of the Reserve Bank were brought to the attention of the Board of the Reserve Bank at its meeting on September 4, 1990.

"It would seem incredible, particularly in the light of the

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State Bank of Victoria (SBV) experience, that the Reserve Bank's concerns were not brought to the attention of either its Board, the Treasury or the Treasurer during the second half of 1990.

"The Governor and the Deputy Governor may not have a duty to report every minor matter that comes before the Reserve Bank to the Treasurer.

"But in August 1990, the Governor was minuting the possible need for 'corrective action' and his Deputy wrote thati

When do we feel a need to talk to the shareholder? (We don't want to overlook this aspect given the SBV precedent).

"It is incredible that in these circumstances the Governor and Deputy Governor would not inform the Treasurer, his office or department when one of the nation's State Banks was in such a perilous and parlous state.

"Senator Button and the Prime Minister must clarify what and when they knew about the SBSA's financial difficulties.

"They need to explain how the Government became aware of the SBSA's problems only on January 31 when the Reserve Bank had been aware of problems as far back as 1987, and when an

important position paper endorsed by the Governor and Deputy Governor set the alarm bells ringing in August 1990."

(ends)

Enquiries· Senator Hill on (08) 373 4214 or Mark Batistich (08) 224 0167

WEEKLY SENATE HANSARD 20 February 1991

Page: 910

QUESTIONS WITHOUT NOTICE STATE BANK OF SOUTH AUSTRALIA

STATE BANK OF SOUTH AUSTRALIA

Senator OLSEN-I address my question to the Minister representing the Treasurer. The Governor of the Reserve Bank of Australia said publicly yesterday:

If we were to become aware of a problem in a State bank, we would press the management board to clarify the nature and extent of the difficulty and to put in place strategies to

maintain the viability of the bank, and if it was particularly serious the Reserve Bank would seek to ensure that the owner was fully aware of the problem.

In light of that fact, did the Reserve Bank inform the owner of the South Australian State Bank, Premier John Bannon, of the bank's problems? If so when, and if not why not?

Senator BUTTON-As to what Mr Fraser said took place in relation to the State Bank of South Australia, let me say that that bank provided the Reserve Bank of Australia on a voluntary basis with a range of information. Some of this was published in the Reserve Bank's monthly bulletin. The bulk of the information is supplied, however, on a strictly confidential basis which the Reserve Bank is committed to respect. It is worth reiterating

that this regularly provided information does not include details of individual loans. The Reserve Bank, I am advised, had a number of discussions with the State Bank of South Australia management during 1990,

particularly in the light of its results for 1989­ 90 which showed an operating loss. These discussions covered many issues, including its policy on provisions for potential loan losses. The questions raised in these discussions would have been one factor behind the State Bank's decision to engage J.P. Morgan as consultants.

To come to the nub of the question, if I can identify it, the magnitude of the State Bank's problems began to emerge progressively as its end December 1990 accounts were being prepared. The Reserve Bank was informed of

this during January 1991 and immediately engaged in discussions with the bank and its owner on measures to restore its capital and to maintain its viability. That answer is in part an answer to the question asked ty

Senator Olsen today and in part an answer to the question he asked the day before yesterday in respect to which I had a prepared answer.

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economy? the individual bank's wsrs seen a t cog· in that machine; end generally speaking the Reserve Bank dtd not regard iteelf ee he vino any direct responsibility to, or any obligation or indeed authority, to communicate with the ahirehctder-ownera of those bonks, indeed, the evidence suggests that if tits Reserve Bank hed-hean aelted to report regularly to the State Government it may vary welFttfta destined to do so, it only to protect the Integrity of its voluntary relationship with the State SaniC '

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It la not appropriate for this Commission to examine or Question, that general policy, intelligible and reasonable as it appears to be. But there seem s to be no very good reason why it should be applied strictly in a# Its facets to the State Bank, more particularly as the financial health of the Bank had a oloee connection with the financial health of the State, and one would expect the financial health of the State, in the context of the national economy, to be of interest to the Federal Treasurer, and through him to the State Treasurer. That wes certainly Mr Barmen's view but he had no bee's for an expectation that the Reserve Bank would take the some view.’

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The Reserve Bank itself, however, wee net totally blind to the Interest of the State. In August 18B0, a Reserve Bank position paper on the seemingly perflous and worrying plight of the Steto Bank was directed to the Governor end the Deputy Governor of the Reserve Bank.1 The Governor endorsed it with • comment pointing to the possible nsed for ’corrective a c tio n w ith o u t any indication of what action was available. Hia deputy wea more explicit; 'Whan do we feel a need to talk to the shareholder? (We don't want to overlook this aspect given the SBV precedent)'.

Given *1 concern Of toe Ruin* Bant* torn of.which hoi extended back to 1997 and all of which had bit* expressed 0» main ocauhtu, a mot· appropriate cammed wotdd hove been, Wty htntnH wt bees towng to to* shareholder?'.

As e footnote, it aaems from e diary note of a discussion with Dr Bethune of State Treasury on the very same day that the Reserve Benk may not have known that tit* reel 'shareholder' or owner wea SAFA.* One can only wonder#* and perhaps the Auditor General will answer M due course, how explicit the State Benk had been in disclosing its capital structure to the Reserve Benk.

Agatosttok background, k it relevant to notice some aspectt t f & t relationship apt; eammadeadon between to* Reserve Bank and the State Book which were not known by or communicated to to* State Government and which, hod they been known, might mett ham had a profound effect upon toe atritodt and hands ofTpotlcy that toe

Government adopted to tte dealings with the State Bank. In particular, It to possm* to detect In these matters an dement o f defiance of toe deserve Bonk, er neglect of * advice, by toe Suae Bank» The sxsmplea chosen are merely illustrative, end not •exhaustive. . . . ,

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Between 1BS7 e r consultations ant contrary to the roJ and It was depret

While Mr Clark w Bank, he quite d conceal his dleagr

too Intrusive or ot attitude, and it is the Reserve Benk wanted him to lu

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This matter w as eequsnue of eve

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to incre repress The Re tranaac saaoclt the Re.· propose statute The tre 30 Ms not rep on 2 6 , writter diaepp The c Treeai expect guidelit

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