Financial System

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GUEST OBSERVATION
Australians have A$2.6 trillion in superannuation assets. We conducted a study of Australian women who influence or make decisions about how these assets are invested. Research shows gender-diverse investment teams lead to better investment returns. Yet women report being subject to sexist and unequal treatment in their industry.
While women are now the majority of finance graduates at some Australian universities, they remain a minority at all levels of investment management. They comprise 17% of Australian investment managers. On average they experience a 33% gender pay gap. This is almost 10 percentage points bigger than the gap across all industries.
The gender pay gap is particularly pronounced because discretionary bonuses make up a substantial portion of pay packets in investment management. Women are less likely to be in roles that are paid bonuses. The also report being paid lower bonuses than male equivalents.
Our survey and interview data from 127 women show investment management remains a “boys’ club”. Our findings mirror those of studies of women in Australian finance conducted since 1991. Little has changed over 30 years.
The women in our study were ambitious and passionate about working in investment management. They talked about the strong sense of purpose their jobs provided. They wanted more women making career decisions to be aware of the financial and intellectual rewards.
Most study participants were relatively senior, and most agreed they were treated with respect and had sufficient flexibility over work hours. But only half agreed their workplace treated men and women equally. A significant minority had experienced sexual harassment, offensive remarks or behaviours, and exclusion from important work-related events.
Working mothers have it hardest
Lack of accommodation of working mothers was the key problem identified.
More than half agreed working flexibly or part-time compromised career opportunities. Women described only limited access to flexibility and maternity leave, and stalled careers as a result. Women who took extended leave or “downshifted” were paid less than men in their cohort. This led to a widening pay gap over the course of their careers.
Other problems were identified:
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an “ingrained” culture of sexism and gender discrimination; this included stereotyped views of women being best suited to administrative roles, and that their primary role was that of family carer
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unconscious and conscious biases screening women out of recruitment processes and preventing their advancement
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disillusionment that men across the industry were only paying “lip service” to gender equality
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an absence of support, sponsorship and mentoring from direct managers throughout their careers.
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Diversity promotes accountability
Finance-sector organisations are under pressure to improve their accountability and performance following the banking royal commission. Having more diverse decision-making is key to this. Cognitively diverse teams are less likely to engage in group think or risky behaviours.
It’s important the leaders of investment management organisations show genuine commitment to improving diversity. It’s equally important this commitment is enacted by managers at all levels.
At the team level, managers should provide support and equal opportunities for women to “stretch” themselves and build their potential for promotion. We found women given the same career-advancing assignments as male colleagues advanced to senior levels and recruited more women at levels below.
One catalyst for change might be to link managers’ pay, bonuses or promotion prospects to achieving key performance indicators for supportive and equitable management practices.
At an industry level, superannuation funds such as HESTA are measuring gender diversity in the firms that manage their assets.
The research points to a need for organisations to “de-bias” all people management processes to ensure gender-equal outcomes in recruitment, allocation of assignments, development opportunities, promotions and remuneration.
To accommodate working parents, organisations should redesign jobs to allow for reduced workloads and career advancement. They need to develop strategies that minimise the impact of maternity leave on career trajectories. They should also encourage men to work flexibly and take extended parental leave, so this becomes a cultural norm.<img src="https://counter.theconversation.com/content/103319/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
Sarah Oxenbridge, Research Fellow, University of Sydney Business School, University of Sydney
Rae Cooper, Associate Dean, University of Sydney Business School, co-Director Women, Work and Leadership Research Group, University of Sydney, University of Sydney
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/for-the-sake-of-our-retirement-savings-its-time-to-reform-the-investment-management-boys-club-103319" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

For the sake of our retirement savings, it’s time to reform the investment management boys’ club

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GUEST OBSERVATION
In the 2017 budget lockup - when then-Treasurer Scott Morrison announced his outrageous bank tax/heist - I heard one well-known journo remark to another “Boy, it’s a f…ing bad day to be a banker”.
And so one might say today that it’s a bad time to be a central banker.
The big debate going on at the moment is whether the “inflation-targeting” framework followed by the United States Federal Reserve, Reserve Bank of Australia and other central banks, is up to the job in a post-2008 world.
Inflation targeting is where central banks try and keep inflation within a certain range. But they have recently been struggling to achieve their targets.
It’s pretty clear the real interest rate consistent with financial stability in advanced economies is lower than it has been in the past. This means GDP growth rates with a two in front of them are the new normal.
How should monetary policy change - if at all - in light of this?
Inflation targeting in both the United States and Australia dates to the (early/mid) 1990s. Central banks saw a tradeoff between inflation that was either too high or too low. The US Federal Reserve (to this day) summarises it as follows (emphasis added)
"Over time a higher inflation rate would reduce the public’s ability to make accurate economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation… a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken."
At the time the Fed settled on a 2% target and the RBA on a 2-3% band.
The question is, are these useful targets today?
As former US Treasury Secretary and NEC Chair Larry Summers put it when commenting on the tradeoff and how it might have changed (emphasis added):
"I do not see much that has changed that bears on the cost of higher inflation in making it harder for economic agents to plan. On the other hand there are compelling reasons to believe that the risks of deflation have increased. First, the world has seen a substantial amount of deflation or very low inflation over the last 20 years. In Japan and significant parts of Europe, deflation has taken place over several year periods. And there were moments during the financial crisis when deflation appeared a real risk for the United States. Second, deflation scenarios occur when the economy falls into the liquidity trap where short term safe nominal rates cannot be reduced any further even though there is economic slack and inflation rates are declining. On any reasonable calculation this is a much greater risk than it could have appeared in the mid-1990s."
The risk is these frameworks are beneficial precisely because they provide certainty to markets and economic actors, and anchor inflation expectations. If one changes the framework too readily or too often then disaster looms.
Changing the mandate
Having said that, there’s a good case to be made for a nominal GDP target rather than the kind of inflation target we currently have. A number of distinguished scholars have advocated this position.
Whatever the new framework is - and there surely needs to be a new one - should almost surely involve nominal interest rates around 5% in normal times. This would permit monetary policy to respond to sharp economic downturns.
How that is achieved is a tactical, not a strategic question. And I say that with all due chiding.
To me, the deep and hard question is how we transition to such a framework without a large loss of credibility. That surely involves making the case - in a compelling fashion - that the world has changed.
US Federal Reserve chair Jay Powell and RBA governor Phil Lowe need to have this discussion very publicly.
Thus far the RBA has not really been on the field, but it pulled out its strongest intellectual weapon on Wednesday, with deputy governor Guy Debelle delivering a detailed speech on inflation in Brisbane.
He offered some suggestions about why inflation has been low - perhaps unusually so - of late, and then concluded with something that sounded an awful lot like the party line (emphasis added):
"Our current forecast for inflation is broadly unchanged from earlier forecasts. We did revise down our expectation for inflation in the current quarter for reasons I have just discussed. Beyond the September quarter, we continue to expect inflation to be around 2¼% over the next couple of years as above-trend GDP growth reduces spare capacity in the labour market and there is an associated pick-up in wages growth. We expect most of these other forces that have contributed to the recent low rate of inflation to abate but there is uncertainty about how much longer they will persist. We would like to be more confident that inflation will be sustained at a rate consistent with the target."
The RBA can call it their “house view”, and we observers can call it other things. But one thing is for sure, the RBA cannot duck the question of what the appropriate monetary-policy framework is for a secular-stagnation world much longer.

They may be able to keep the cash rate on hold, but this debate cannot be kept on hold.
Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW<a href="http://theconversation.com/institutions/unsw-1414"></a>
This article was originally published on <a href="http://theconversation.com">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-its-time-to-discuss-a-new-framework-for-central-banking-101978">original article</a>.
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rh-YsoTT2xMuQ

 It’s time to discuss a new framework for central banking: Richard Holden

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Comparison website RateCity has welcomed the federal government’s decision to hold a Royal Commission into Australia’s financial sector.
RateCity CEO Paul Marshall said the only way to restore public trust in our financial sector was through a Royal Commission.
“Australians rely on financial products every single day," Marshall said.
"They hold the keys to our homes. They are the keepers of our retirement.
“We all agree banks are a fundamental to our economy but they are also fundamental to our society. We expect our banks to lend responsibility and help us manage our finances.
“Every Australian is entitled to financial products that are honest and fair. The government is right to focus on this point.
“We would like to see changes that make financial services more transparent and easy-to-understand. Any recommendations should focus on increasing competition and reducing costs for consumers, not the reverse.
“Australia’s big banks have been at the forefront of a long list of scandals and wrongdoings for too long. We’re well past the mea cupla stage.
“It’s time to look at the culture inside our banks and make sure it is in line with community values,” Marshall said.
Mr Turnbull’s announcement comes after the chief executives of the big banks, the Commonwealth, Westpac, National Australia and ANZ banks requested the government step in to  aunch an inquiry.
It was in an email sent to Treasurer Scott Morrison yesterday.
Treasurer Scott Morrison dubbed the Royal Commission a “regrettable but necessary action”.
Leader of the opposition Bill Shorten took to Twitter to take a dig at Prime Minister Malcolm Turnbull.
He tweeted "Is Malcolm Turnbull the last person in Australia who doesn't see the need for a Banking Royal Commission?"
Heritage Bank welcomed the Royal Commission into the banking sector, however Heritage Bank CEO Peter Lock said that the customer-owned banking sector, which included Heritage, should not be dragged into an inquiry based on the alleged wrong doings of the big banks. 
“The whole issue of the need for an inquiry into the banking sector has been used as political football for far too long,” Mr Lock said. 
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jonathanchancellor-7SQnKwU6yx

Banking royal commission should focus on an honest and fair financial system

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GUEST OBSERVER
The government’s response to the Financial System Inquiry is good news for consumers and will help promote a competitive and diverse banking and financial landscape and we congratulate the government on accepting the majority of Inquiry Chair David Murray’s recommendations, which were handed down in late 2014.
The recent announcement by the government is good news for customers and will continue to enhance the integrity, competition and transparency in our financial system in Australia. 
I’m pleased to see there will be a stronger focus on competition in the sector, through the inclusion of competition in ASIC’s mandate and also through the commitment to review competition in the financial system by the end of 2017. 
CUA hopes this is just the beginning, and that we will see a continued focus on competition going forward, including regular rolling reviews of competition within the financial system.
We welcome the requirement for transparency around vertically integrated financial advice and mortgage broking businesses, owned by larger banks, and for higher standards in financial advice and acknowledge the steps the government and regulators, including the Australian Prudential Regulation Authority (APRA), have already taken in recent months in response to recommendations which came out of the Inquiry.
The government’s decision earlier this year to not proceed with a levy on deposits was a sensible outcome which was in the best interests of Australians and customer-owned institutions like CUA. 
Likewise, I’m pleased to see the government has endorsed the steps already taken by APRA towards requiring the majors to hold more capital against home loans and the release of a discussion paper on capital levels for ADIs. Both of these are positive outcomes for consumers and customer-owned lenders like CUA. 
CUA looks forward to APRA implementing the broader international work on risk weights for mortgages - the so called Basel 4 approach - which could enable our sector to allocate more appropriate levels of capital to customers with lower loan to valuation ratios. This tailored approach has been missing from our repertoire and will be a major step forward for mutuals given our focus on the customer.
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The CUA would seek further details on some of the proposed actions and how they would impact CUA, including changes to the definitions around term deposits. 
We look forward to continuing to work closely with industry stakeholders, regulators and the Government on implementing these measures so Australians can continue to enjoy a strong, secure and competitive financial services landscape. 
 
Rob Goudswaard is Chief Executive Officer, CUA and can be contacted <a href="https://www.cua.com.au" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

CUA applauds measures to promote competition in financial services

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February 29s are a relatively unusual occurrence given the rules that decide leap years: every year divisible by four is a leap year, but every year divisible by 100 is not a leap year, unless the year is also divisible by 400, then it is still a leap year.
As amusing as they are, much can rest on the incidence of the leap year.
Indeed, bankruptcy notices have been set aside because banks didn’t correctly calculate the 366th day in their claims.
The much-feted Sydney developer Andrew Clubb avoided Westpac’s bankruptcy application in a fascinating 1990 Supreme Court ruling – the story still resonates around lower north shore drinking holes.
And a look at the judgement is quite colourful too … for a Federal Court ruling.
“When Julius Caesar decreed that from the year now known as 45 BC onwards there should be adopted the Julian calendar, with its provision for recurring bissextile or leap years, he not only set the scene for a well-known Gilbertian jest; he also set the scene for the problem posed by the present case,” his honour Justice James Burchett said in his 1990 judgement.
“For the basic question is whether, in calculating a proportionate amount of interest due at a yearly rate, the year in question being a leap year, is it permissible to convert the yearly sum to a daily rate by dividing by 365, or whether it is essential to include the intercalary day, thus making the divisor 366.”
Clubb’s bankruptcy notice claimed the sum of $427,938.29, together with $311,000 interest on the balance of the judgment with the obligation to pay interest at a rate, which is stated as a percentage "yearly". There were different daily rates of interest – ranging from 15% to 19.5% - relating to  particular time periods within the period of indebtedness.
The period included a leap year 1988, which had the extra day.
After doing his sums, his honour ruled the total error was $213.
And so given the long precedent that bankruptcy notices are invalid if the sum specified exceeds the amount for which the creditor was entitled, Clubb’s lawyer secured victory.
The bank failed in its contention that the word "yearly" had reference to a common year of 365 days after counsel for the bank cited Halsbury fourth edition volume 45 para.1102, where the expression "common year" referred to a year that consists of 365 days.
His honour suggested it would be a curious anomaly, if applied to a portion of a leap year consisting of 365 days, that the interest for that portion of the leap year would be identical to the interest that could lawfully be exacted for the full year.
“For these reasons, I have concluded that the bankruptcy notice is invalid and must be set aside,” he ruled.
There was another judgement in 1991 where a debt exceeding $100,000 was overstated by $33.19 and the bankruptcy application against the The New York Deli, Double Bay restaurateur Henry Saade was similarly invalid.
None since then that I am aware of, which suggests the banks are alert to the loophole. And there have been two cases – Shaddock and Hodgson – where it’s been ruled in the financier’s favour after the court calculator ran a check over the amounts claimed.
Oh and that bit of Gilbertian jest was The Pirates of Penzance and its character Frederic the pirate apprentice, who was indentured to remain with the pirates until his 21st birthday, but technically going by birthdays was only five, and so  must serve for another 63 years.
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