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RBA letters show lengths Swan went to in stripping our Reserve Bank of $500M dividend against the Board's wishes

On 22 February the Governor of the Reserve Bank Glenn Stevens gave evidence to a Senate Estimates Committee and we reported the exchange here.

Glenn Stevens has told the House of Representatives Economics Committee today that Wayne Swan stripped $500,000,000.00 from the Reserve Bank in 2011/12, against the advice of the Governor.

"It is certainly my desire to rebuild the capital over time and the only way we can rebuild it is to retain some of the earnings when we make positive earnings," he said.

He said while his advice to the treasurer was that he wanted to retain all of the bank's $1.096 billion of earnings in 2011/12, Mr Swan didn't agree.

"That's his prerogative," Mr Stevens said.

"I believe the prudent and best course is to rebuild that reserve as quickly as we can but I am not subject to the other pressures that the government is.

Now we can show you the letters between Swan and the RBA, including Swan overrriding the prudent wishes of the Reserve Bank Governor that the RBA retain its earnings to provide resilience in the face of continued global uncertainty.   Swan just wanted the cash.   What more important priority could there be for the Reserve Bank's cash than properly financing the nation's Reserve Fund, the final buffer in the face of significant global uncertainty?

Here are all the letters, released under Freedom of Information  Download Reserve bank of australia correspondence with swan

And here's the story in excerpts.

On 21 March last year, Nick Creagh from Swan's department wrote to the RBA asking for details of its estimated dividend based on its operating profit for the 2011/12 year.

On 30 March 2012, Frank Campbell, the Assistant Governor of the RBA wrote back to Mr Creagh advising of its relatively impaired balance sheet and the inadvisability of further depleting the RBA of cash - here's the important paragraph, it shows that the Treasurer himself had been advised of the issue:

RBA no dividend 30 march
On 3 July, Glenn Stevens the Governor of the RBA wrote to Swan to formally seek his approval for the retention by the RBA of its operating profits and the transfer of that cash to Reserve Bank Reserve Fund.   Here's the 1st page of that letter:

Glenn Stevens no money to swan
A few days later on 27 July the CFO of the Reserve Bank wrote to Treasury, again setting out the prudent course for the nation's central bank - that it attend to its balance sheet and retain its profits.   Thus far all of the correspondence seems routine, prudent and uncontroversial - it's obviously the right thing to do.

Rba confirming to treasury retained profits
Keep in mind this all relates to profits made in the 2011/2012 financial year that ended 30 June 2012.   Swan wanted the cash for this FY to help achieve his fanciful budget surplus.

On 28 August, 2012, the Governor of the Reserve Bank received this undated letter from Swan, reneging on the previous agreements, and directing the RBA to forward $500M to the Treasury's consolidated revenue, booked as a dividend from the RBA.

Swan raids the RBA for $500M
Swan didn't date his letter, but Governor Steven's office date stamped it:

Rba date stamp
I think Swan's letter is breathtaking.   Swan says that Australia's central bank, the Reserve Bank should "work towards replenishing its Reserve Fund" but that didn't stop him raiding the Reserve for $500M to be paid from 2011/12 profits into the 2012/13 year as an easy get so the Gillard Government could achieve its surplus.   It's a brave layman, politician turned Treasurer who would go against the best advice of the RBA, its Governor and Board to denude the RBA's Reserve Fund and strip out a half billion dividend.

This letter from Darryl Ross the CFO of the Reserve Bank of Australia to his counterpart Mathew King, the CFO at Treasury very clearly puts on the record precisely who made the special dividend decision.   Darryl Ross didn't mince words in his para 2, "The Deputy Prime Minister and Treasurer has determined that a sum of $500million will be paid as a dividend to the Australian Government".

Darryl ross confirms what FI did to his counterpart at Treasury
No wonder Swan is known as FI amongst the professionals who have to work for him.

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