Review of the governance of the Reserve Bank of Australia

By Peter Jones and Vince Battaglia

The Federal Treasurer, Dr Jim Chalmers, has released the terms of reference for the review of the Reserve Bank of Australia to be conducted by a panel of three independent experts. In announcing the review, the Treasurer said the review will consider the RBA’s objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations and other matters.

One of the key aspects of the review will be its assessment of the governance arrangements of the RBA. The terms of reference (TOR) state that the review will assess those arrangements, including Board structure, experiences and expertise, composition and the appointments process.

The governance structure of the RBA is set out in the Reserve Bank Act 1959 (Cth) (the Act). The Act prescribes two boards, the Reserve Bank Board and the Payments System Board. The TOR appear to exclude a review of the Payments System Board as they expressly exclude a review of the RBA’s payments, financial infrastructure, banking and banknotes functions.

In relation to the Reserve Bank Board, the specific arrangements that the panel is required to assess are all dealt with in sections 14 and 20 of Act, which may be summarised as follows.

  • The Reserve Bank Board comprises nine members, being:
    • the Governor of the RBA (who is appointed by the Treasurer under section 24 of the Act);
    • the Deputy Governor of the RBA (also appointed by the Treasurer under section 24);
    • the Secretary to the Department of the Treasury (who is appointed to their role as Secretary by the Governor-General on the recommendation of the Prime Minister); and
    • six other members appointed by the Treasurer.
  • The Governor shall be the chairperson of the Reserve Bank Board and the Deputy Governor shall be the deputy chairperson of the Reserve Bank Board.

We anticipate that the sorts of questions the panel will consult on are likely to cover the following topics.

  • Is the composition, experience and expertise of the Reserve Bank Board constrained by the role of the Treasurer as the appointor of eight of the nine members? If so on whom, or on which body, should the appointment power be conferred?
  • Should criteria for the composition, experience and expertise of the Reserve Bank Board members be set out in the Act (or somewhere else that is publicly available)?
  • Should the Governor/Deputy Governor be the chairperson/deputy chairperson of the Reserve Bank Board or should those roles be allocated to other members of the Reserve Bank Board? If so, should they be allocated by the Treasurer or by the members of the Reserve Bank Board (or some other way, noting that the member of the Reserve Bank Board presiding at its meetings has a casting vote in addition to their deliberative vote under section 21 of the Act)?

Under the TOR, the panel is required to take account of analysis conducted in prior reviews of other central banks including the US Federal Reserve, the Bank of Canada, the Reserve Bank of New Zealand and the European Central Bank. Those comparisons will be applied in this area to record the different models of board structure/composition adopted by other central banks and also to assess the influence of those different structures etc on the monetary policy performance of those other central banks.

The panel is not limited to only reviewing the aspects of the RBA's governance arrangements relating to Board structure, experiences and expertise, composition and the appointments process.

One aspect of the broader governance arrangements that the panel could consider covering is the Board's role in the management of the RBA’s policies other than monetary policy.

Australians are very familiar with the Reserve Bank Board’s role under section 10(2) of the Act in relation to monetary policy. This is the policy that is to be assessed by the panel under section 1 of the TOR.

But the Reserve Bank Board is also responsible for the RBA's policy on all other matters (except for its payments system policy – section 8A(2)) and has power to take such action as is necessary to ensure that effect is given by the RBA to these policies (section 10(1)).

This is a broader remit for the Reserve Bank Board than is generally perceived, apparently covering all RBA policies, including those on risk management, cyber security and modern slavery (to name just three that apply to corporations generally) and digital currency and banknotes (as two examples of policies of particular relevance to the RBA).

Section 12(2) of the Act says that, subject to section 10 (and section 10B relating to the Payments System Board) the RBA shall be managed by the Governor.

In the context of considering the structure, experiences and expertise and composition of the Board, it would be appropriate to also consider the extent to which the Board’s responsibilities and powers extend beyond monetary policy and thereby supplant the Governor’s management of the RBA generally.

It is likely to be beneficial for this aspect of the RBA’s governance arrangements to also be canvassed during the extensive consultations to be conducted by the panel over the next several months.

The review panel is required to produce a final report with recommendations to Government by March 2023.


Peter Jones

Peter Jones

Senior Commercial Counsel

Senior Commercial Counsel Peter Jones is a banking & finance, corporate, and regulatory lawyer with over 30 years' experience.

Vince Battaglia

Vince is an experienced funds management and financial services practitioner, working with Australian and global fund managers.

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