Should the Government own a bank?
It's a simple enough question to ask.
But I think it is devilishly difficult to answer.
In the New Zealand context it's a question that has been around for years. There was the BNZ of course and the various misadventures around that after the 1987 stock market crash.
Then more latterly there has been Kiwibank. And, let's face it, now the Government has unequivocally decided to buy the bank out, there WILL BE Kiwibank as a state owned bank. For how long? Well, interesting.
I straight up have to say that I'm disappointed by this development.
I confess to having flip-flopped around a fair bit over the years over the idea of Government ownership of a bank.
Generally I still think governments shouldn't own commercial businesses. And obviously things like airlines and power companies come to mind as well in this category.
Where the subject gets really sticky is when something's an essential service or is, or close to, a monopoly. There are arguments that go both ways. For example I have been a long term opponent of we the taxpayer owning Air New Zealand.
And yet, I do have to confess that during this unprecedented last two and a half years, state ownership of the flag carrier has been a bit useful.
A bank theoretically is not quite in the same category. There's a number of them for a start and they don't have quite the same 'essential' characteristics as something like power supply. Although, granted, it would be quite difficult getting around without a bank account these days.
But a bank is nevertheless something that inspires a mass of contradictions in thinking. We don't like to see banks making too much money - which apparently they appear to be.
We don't, however, want to see our banking LOSING money do we? Because that has all sorts of potential ramifications.
The original idea of Kiwibank as an NZ bank for NZers, helping out NZers etc was noble. But in reality, unless a government is prepared to run a bank strictly as a social service and very definitely at a loss, the idea of a bank as a social service probably won't work.
For the most part then Kiwibank has been run on a strictly commercial basis and hasn't appeared, to me, to be all that different to the Australian-owned banks. Yes, a feelgood factor in it being, well, Kiwi, but not much different otherwise.
Politically championed by the late Jim Anderton when he was Deputy Prime Minister, Kiwibank has been interestingly positioned, in the sense that it has not really felt as though it is state owned.
It was a master stroke to originally place it under the ownership of NZ Post at inception in 2002, since this made it sort-of-not-seeming-to-be, while actually, state-owned.
What wasn't foreseen at the time Kiwibank was born within NZ Post was the fact that almost everybody would eventually stop getting letters. The world changed. NZ Post had to change. And owning a bank was a bit tough.
I was therefore delighted when in 2016 the NZ Super Fund emerged as a shareholder. This seemed to me to be the perfect solution. NZ Super is for the state but, in essence not really OF the state despite Government ownership. It's independent and it has commercial imperatives. It needs to make a buck, a lot of bucks - and so it has. And we will need them.
I guess what I hoped was that the Super Fund would be able to somehow engineer those strong commercial returns from Kiwibank over the long term.
The fact that it wanted to have the option of bringing in outside shareholders and wanted to retain its options regarding an exit from the bank tells you everything you need to know, unfortunately.
I completely respect where the NZ Super Fund is coming from on this one. The fund has a huge role to play in the future wellbeing of Kiwis and it can't be and won't be co-opted into providing a social service now that will prevent it from doing its job to help fund pensions later.
So, it's unsurprising, but disappointing, to realise that ultimately the Super Fund couldn't see simply owning Kiwibank long term as fitting in with its own future imperatives.
The question then is: If the Super Fund, with all its undoubted investment expertise, didn't see Kiwibank offering it sufficient long term returns - what will this and future Governments be able to do?
I go back to an earlier point about a 'social service'. Is this to be Kiwibank's lot now under unambiguous Government ownership?
The problem with that is a fear you would be condemning the bank to being a loss-maker. As I said earlier, we don't like the idea of banks losing money. But of course it's not a problem if said bank is actually owned by the Government.
However, are we as a nation prepared to say that we would be happy from now on and into the future to be tipping taxpayers' money into a bank, simply so we can say its ours and it's helping us out? How much money would we have to tip in? And what would be our perceived return?
Maybe there are people out there who think that is a good idea.
And there definitely is value in the idea of 'for the public good'. We shouldn't necessarily think that something that's providing a valuable public service has to turn a buck as well. There is such a thing as investing in things for good social outcomes.
But how much of that can we ultimately achieve through a bank?
The other thought that comes to mind is, if Kiwibank began to be operated on a social-first basis and was maybe undercutting other banks on interest rates and fees and things, what sort of distortions would this cause in the banking industry?
Yes, I've indicated further up in this article that I think our banks do make too much money. But it's that strange juggling act, isn't it. If some of the big Aussies thought that NZ was becoming unprofitable they just might consider leaving. And less banking options definitely would not be good.
At the end of the day, I'm not sure how well thought out this decision by the Government to take full control of Kiwibank has been.
I would like to, see pretty soon after the deal is finalised, a fairly fulsome outline from the Government of how this is all going to work. How Kiwibank will be operated as a commercial(?) bank. How the Government will fund it - because it's to be presumed it will need future funding. What the 'end point' is. Does the Government see itself owning the bank now in perpetuity?
Without some clear statements of intent from the Government, I fear that this whole thing could ultimately be corrosive for Kiwibank. And that would be a shame.
I think Kiwibank has done real well. But arguably, with what has happened, we've now seen clearly how hard it actually is to set up and run a bank like Kiwibank long term.
And I don't for a moment imagine it will get any easier.
No, the Government can't just hope to quietly consummate this takeover deal and then, sort of, well, you know, let things drift along.
We need a plan. And frankly, I don't think I need to shout from the rooftops that this Government more so than any in my living memory, has no track record when it comes to developing and executing a plan.
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41 Comments
100% agree. Unfortunately the CEO who was responsible for the $90m impairment on a part of their IT system has retired or resigned. Next is to go is one level down and see if they are still around.
I'm in favour of Kiwibank provided it is fully capitalised or capital increased by the taxpayer and as long as there is a clean out of the chairman and the board. Give the current CEO the benefit of the doubt. This won't happen as there are likely to be political stooges appointed to the board and no doubt the correct gender make-up and co-governance appointments.
For better or worse the way it is today is that a bank account is needed to participate in society. Try finding a place to rent where your landlord is happy to be paid in cash. Or receive a benefit such as NZ super or the cost of living payment as cash. Even the essential utility of power mentioned in the article would be a real issue without a bank account. I guess you could buy prezzy cards and use them to pay, but the fees would be crippling. For now at least you can still pay tax in cash at a Westpac branch, if there's one you can actually get to.
Maybe one day a crypto token or the like would be an option, but right now the places you can get paid in it and use it are very limited.
50 years ago on the Hebrides (western islands of Scotland) the bank opened on Thursday afternoon only. But the bank manager opened and held the door for each customer, said hallo and asked them how the fishing was doing, etc. That is all a bank needs from a branch - opening on market day plus an ATM.
I'd like said undercutting to take place. Happy if Kiwibank only broke even + hedge for capital requirements or IT development. Any SOE that makes a profit and sends a dividend to the govt is stealing from Peter to pay Paul, but then Paul buys a whole lot of things for Peter with the cash that Peter may or may not have wanted or needed.
Kiwibank has been run on a strictly commercial basis and hasn't appeared, to me, to be all that different to the Australian-owned banks
This is a mistaken view. Actually it's the Australian banks that aren't all that different to Kiwibank. Kiwibank was very different at launch and the Aussie banks all dropped their fees to match.
Would the ANZ Low Rate Visa product exist if KiwiBank hadn't launched their Zero Visa product?
Like with 2degrees. I can get the same deal from Spark or Vodafone, so as a customer am I any better off because 2 degrees exists? Yes, because before 2degrees existed, i couldn't get those deals, everything was more expensive. Would Spark have setup Skinny to beat 2 degrees at their own game if 2degrees didn't exist?
David, you and I have both been around long enough to know exactly how this works. Things get privatised when they're profitable, and bailed out by the taxpayer when they're not. Once investors smell blood in the water it'll be up for sale again, rinse and repeat ad nauseum.
We've seen this happen over and over for the past 40 odd years. Kiwibank is no different.
if the government is serious about Kiwibank improving all banking services and costs --
first it need to invest some of the current account surplus in teh bank to provide large amounts of equity -
second -- transfer all government banking and financial services from Westpac to Kiwibank to assist with volume, cash flows and engagement --
Thirdly regulate it as a national bank -- -limiting its SURPLUS -- which has to be reinvested in the banks infrastructure and services
that - might just might help and allow it to undercut the big 4 not having a huge profit target -- and create a more competative environment across the board -
I woudl change in a heartbeat -- haver tried three times - - but on each occassion the difference in rates / fees was way too much to suck up personally
It will be rebranded as the 'Post Office Savings Bank' and will offer new products known as the 'Squirrel' saving account and 'Bonus Bonds'... it aims also to set up an internet/ tele-communications service that will be known as 'Telecom'... whilst eventually looking at taking over NZpost ... Then it will be a 1 stop shop for all your banking-internet/phone and mail/parcel services...What a fantastic idea/visionary endgame....lol ...Wait a minute...What the....
I'd love to see more competition within the industry by seperating front end services from the back end. Like N26 has in Europe, they are experts at the front-end customer facing stuff and they leave the back end stuff like payment systems to Deutsche Bank.
We need a way to pitch banks against each other, not as vertically and horizontally integrated institutions, but as individual service and sub-service providers. Force them into "white label" banking.
This gives a good opportunity to the next National Government to privatise Kiwibank and let it float in the stock exchange of NZ and Australia, to be eventually majority owned by the huge hedge funds and innvestment banks as the current Aussie majors are being owned.
I think you're missing the tangible benefit that owning a bank gives Govt in the medium-term. Consider the context: Day-to-day banking and borrowing can be almost completely automated and digital cash is coming; the banks are making ridiculous profits simply by charging more interest than they pay out and screwing us over on transaction and account changes; Govts across the world have recognised that the ability to drop cash straight into bank accounts is a 'must have' for the future; and, it is entirely possible that we will have a UBI at some point, or even a carbon credit currency running parallel to the NZD. If I was facing this future as Govt I would want leverage and options - and owning a bank gives them that. Oh, and Kiwibank makes money - just not as much as the big boys!
Ok, if it is now state owned , more cash from Superfund NZ x entities to start using Kiwibank more .
Councils, Utilities , AirNZ.Anything that is 51 % state owned.
The worry is If National get in ,they will start mucking around.
John Key wanted to sell.
What gets me is the aussies would snap it up stright away , fund it properly and start making serious profits like
they are with BNZ Westpac ANZ etc.
Over the many decades businesses such as banks, insurance companies, and businesses in other markets where the consumer has very little power or influence over what services are provided or how they are provided and at what price, have demonstrated that they cannot be trusted to provide value for money to their customers.
In those markets the government has had to intervene in the market. And the best approach typically has been for the government to establish an enterprise that keeps the other players honest.
In times past State Insurance, and the POSB, to name two, provided that role.
Market regulation through such means as a "Spot Market" has proven to be ineffective at preventing extortion by electricity generators during times when there has been purposefully inadequate generating capacity available.
So I welcome Kiwibank's presence in the market, and congratulate them for performing so well over the years.
I note that many Kiwibank staff are former National Bank staff who saw the direction that ANZ wanted to take the bank.
Think of it like an insurance policy. The current rejig began when NAB were sounding an exit from NZ. Kiwibank would have loved to be a buyer for them (or one of the other big 4) and the crown is (rightly) worried that if NZ Inc can't present a credible buyer then who else is there?
Since the dawn of history, individuals, groups (companies), government agencies, have done their best to extract resources, usually money, to assure themselves of prosperity. Some have done this by innovative ideas & technology; some by putting in unusual hard work, but in the end most will seek, at least to some degree, to manipulate their particular market segment, preferably through legal means, but often through "sharp" practice....buying up competitors, arranging pricing cartels, etc..
Government owned trading entities are just as bad as private sector, often using state licensing or regulation to reduce competition.
The more power they achieve the more,...as Lord Acton observed,.. arrogant and corrupt they tend to become.The old National Airways Corporation was just one example, founded after WW2 by legislation which eliminated established private sector competitors. In later years this government owned entity used every effort under a later government air services licensing authority to prevent or minimize any private operator who sought to challenge their monopoly. If some would be competitor achieved a license NAC would frequently target them with cut price services designed quite bluntly to drive them out of business.
There are scores of examples of private and public entity behaviour which is designed to act in the favour of the institution and not the ordinary citizen. Perhaps in the Kiwibank situation, there is some benefit to be had by acting as "honest" competition to curb anti competitive behaviour of the bigger players. However, we need to be very careful that government involvement in any market doesn't result in statutory anticompetitive watchdogs being undermined by any government money making vested interest. For example can we have confidence that say, a local authority having shares or total ownership of an aerodrome, or port to exercise its statutory authority over possible adverse effects of that trading entity...noise controls, pollution effects, etc..
The historic record would suggest one should have little confidence governments get the balance right!
In Nelson we had the destruction of Origin Air by Air New Zealand, once Origin were gone, fares mysteriously doubled. Apparently, it wasn't Air New Zealand what did it, according to the independent investigation organised by their owners. New Zealand actually has a significant level of corruption in central and local government, all perfectly legal, of course, but corruption none the less.
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