Reserve Bank of Australia Annual Report – 1997 Management of the Bank

The Bank is organised into five major functional groups, each under the direction of an Assistant Governor; three smaller units provide additional internal support. This management structure reflects policy, business and administrative responsibilities. The resourcing and activities of each functional group are reviewed on a regular basis, and adjusted where necessary to meet changing requirements and improved efficiency.

1996/97 was a year of such adjustment, after an earlier brief settled period. Changes on this occasion centred on the Bank's business and ‘corporate’ (or internal support) services and were a response to the strong competitive pressures facing the Bank's commercial activities. The Business Services Group was reorganised along business unit lines to strengthen management control and sharpen efficiency (see page 39); as a consequence, over 100 staff positions will be shed in coming months, mostly in the support and processing areas of branches. In the corporate services area, an ongoing process of ‘benchmarking’ Bank costs and efficiency against private-sector suppliers has led to decisions to outsource the cleaning and guarding of Head Office and branch buildings, and the provision of catering services in Head Office (branch catering had already been outsourced). Improved technology and changing work flows have also produced staff savings in accounting, auditing and facilities management functions. In all, staff numbers in corporate areas will fall by around 250; most of these departures have already taken place. Staff numbers in the Bank's policy areas are little changed.

In contrast to previous restructurings, where surplus staff were handled mainly through a series of voluntary redundancy and early retirement programs, the latest round has necessarily involved compulsory redundancies. To enable it to handle staff surpluses more efficiently, the Bank has negotiated new redundancy and retrenchment arrangements with staff and the Bank's major unions; these provide for greater management discretion in the selection of staff for retrenchment and more streamlined exit procedures.

Graph showing Staff numbers – As at 30 June

Staff numbers (excluding Note Printing Australia) have fallen from their peak of 3,186 in 1983 to 1304 in June 1997; when the current restructuring has run its course, they will fall to around 1,140. This is a decline of around 65 per cent overall but an even sharper decline in the branches, which are now only one-quarter of their size in 1983. Though the loss of some Bank functions was an early factor behind the decline, the main explanation lies in the impact of technology – particularly on clerical and processing functions – and rigorous scrutiny of the Bank's staffing needs, especially in those non-core areas where the Bank has no comparative expertise. In many of these areas, benchmarking confirmed that the Bank's cost structure and work practices were well out of line with industry, offering scope for substantial cost savings through outsourcing. The benchmarking process has not been all one way, however. The Bank decided to retain mainframe computing services in-house after market testing against commercial suppliers. The Bank also ‘insourced’ the management of its workers' compensation arrangements after assessment of its claims experience against the premia charged by Comcare, the Commonwealth agency with which the Bank had previously been required to insure its liabilities in this area.

The increasingly specialised nature of the Bank's activities makes it essential that staff be equipped with the necessary skills and technology. A range of in-house training courses, including a new senior management development program, is supplemented by external courses in Australia or with overseas central banks and international organisations. In addition, the Bank currently provides study assistance to around 10 per cent of its staff, with most of the recipients pursuing post-graduate qualifications. Because of changing skills needs, the Bank has made greater use of specialist contract staff in certain areas (particularly information technology) to augment its staff resources.

Graph showing ‘Underlying’ operating costs

The Bank's ‘underlying’ operating costs (which exclude lumpy expenditures on redundancies and certain other one-off items) rose moderately in 1996/97, the first increase in five years. The restructuring under way within the Bank and Note Printing Australia will reflect in lower operating costs in 1997/98 and beyond. Since their peak in 1991/92, there has been substantial reduction in staff and other costs in nominal terms, and a bigger reduction in real terms.

Operating costs
($ million)
1991/92 1992/93 1993/94 1994/95 1995/96 1996/97
Staff costs# 116.4 112.3 111.7 108.0 106.6 111.9
Other costs* 68.6 68.7 67.7 59.6 58.8 58.0
‘Underlying’ operating costs 185.0 181.0 179.4 167.6 165.4 169.9
Cost of redundancies 18.8 2.7 9.8 18.1 1.3 12.9
# Excludes redundancies and, from 1994/95, additional charges to comply with new accounting standard AAS30
*Includes premises and equipment (including depreciation), but excludes IMF maintenance of value payment

The Bank's ‘core’ functions – monetary policy, financial system surveillance and note issue – have absorbed a growing share of operating costs over recent years. In 1996/97, their share was around 56 per cent compared with about 50 per cent in 1989/90; the share for ‘non-core’ functions – note production and commercial activities – has fallen commensurately. The latest round of restructuring will accentuate this change in distribution.

Graph showing Distribution of operating costs

The Bank's investment in technology and in the skills of its staff has enabled it to meet substantial increases in activity in various areas, notwithstanding the general contraction in its resources. Though the ‘output’ of a central bank is inherently difficulty to quantify, the indicators presented in the accompanying table suggest strong productivity gains over recent years as far as the processing of different types of transactions is concerned. The largest gain is in respect of foreign government securities and reflects the more active approach to the management of official reserve assets described earlier, although other measures are used to assess the effectiveness of these dealings (see ‘Operations in Financial Markets’). Measuring the output and the quality of the Bank's policy-related activities is, of course, much more difficult.

Indicators of output
(Percentage change from 1990/91 to 1996/97)
Banking and registries
Banking transactions (including GDES) 270
Bank accounts maintained 75
Registry transactions (including RITS) 360
Transactions in domestic and foreign markets
Foreign exchange transactions 110
Transactions in foreign government securities 400
Domestic market operations 190