Prime Minister Jacinda Ardern is unempathetic towards banks ringing the alarm bells over the costs they’d incur if the Reserve Bank (RBNZ) implements its proposal to require them to hold more capital.
She made a dig at ANZ NZ and the chairman of its board, John Key, when asked in a post-Cabinet press conference on Monday about the bank's submission to the RBNZ’s review.
Key said in the submission:
This submission presents analyses to illustrate our concerns, which include:
· In terms of the wider economy, ANZB estimates that the long run cost of the proposals, in present value terms, would be approximately 20% of GDP versus the Reserve Bank’s estimate of 4%-12% of GDP.
· The Reserve Bank has not estimated the transitional impacts of the proposals, which ANZB estimates at GDP being 1%-3% lower over 10 years.
· For customers, ANZB believes potential increases in loan pricing and reductions in loan capital would particularly affect the agricultural and commercial sectors, and potential reductions in deposit pricing would adversely affect savers.
· The potential reallocation of bank capital towards the housing sector would increase the concentration risk on this sector and leave banks more exposed to any sharp correction in residential property prices, potentially increasing financial stability risks.
Ardern's nugget of 'context'
Asked whether she was frightened about the potential costs of the RBNZ’s proposals to the economy, Ardern said she hadn’t seen Key’s letter, but heard “some of the rhetoric coming out of ANZ”.
She then made a pointed comment: “You’ll be aware, of course, the Reserve Bank is doing some work with ANZ in a number of other areas at the moment. So I say that just for context.
“The second point I’d make is that the Reserve Bank has been consulting on some of the changes that they’ve been developing. Those are matters for the Reserve Bank and are yet to be finalised.
“So I think it would be premature to make any statements about relative impact on growth at this point.”
This “context” Ardern mentioned includes the RBNZ requiring ANZ to complete independent reviews of its capital models and attestation process. This follows it revoking ANZ’s accreditation to model its own capital requirements, citing a persistent failure in controls and the director attestation process.
The RBNZ is separately making ANZ increase its risk weighted assets by more than $10 billion, due to it carrying too little capital against its farm and residential loans.
Combined, these two issues mean ANZ’s minimum regulatory capital requirement rises by more than $1 billion.
To add fuel to the fire, the RBNZ is looking into the way ANZ’s shafted CEO, David Hisco, mischaracterised tens of thousands of dollars of expenses over nine years.
Banks' social license to operate 'brough into question'
Asked whether she believed New Zealand needed to follow Australia in having a banking royal commission, particularly as ANZ reportedly ignored whistle-blowers who raised concerns over Hisco’s spending, Ardern reiterated this was unnecessary.
“Pushing back on a royal commission doesn’t mean that there aren’t issues to be answered by the banks and work to be done. I think we’ve acknowledged that by the different streams of work we already have underway,” she said.
“My concern with a royal commission is whether or not that actually takes us any further from what we’ve already been able to instigate.
“No one is saying that in not having a royal commission we have perfection. We do not. Nor are we saying the banks don’t have questions to answer. They do.
“In fact, we’re constantly reminding them, they have social license they need to maintain here. They are answerable to the New Zealand public.”
Asked whether she believed banks still have that social license, Ardern said: “In recent times it’s really been brought into question. They’re the ones that need to restore that faith. We need to make sure there’s faith in our institutions.”
Ardern pointed to the second phase of the Reserve Bank Act review underway, which re-looks at the tools the RBNZ has to regulate banks.
The other work authorities have instigated is the RBNZ and Financial Markets Authority’s banking and life insurance conduct and culture reviews, which have resulted in the Government committing to banning bank/insurance staff sales incentives and considering ways to legislate to better protect consumers.
The financial advice regime has also recently had a major overhaul. Advisers are now legally required to put their customers’ interests first. They also have to meet higher professional standards and disclose more about how they’re paid.
39 Comments
@custard , you are not comparing apples with apples .
US banks got into trouble mostly because of proprietary trading ,(dealing in risky investments for their own account ) and lending recklessly
UK and Aussie Banks dont do as much of this , they stick to their core business of lending , and are remarkably risk averse when compared to US banks in the 2000's
That's Fush and Chups!
https://www.youtube.com/watch?v=ZdVHZwI8pcA
Headline in a NZ Herald online article today.
Quote :
'ANZ threatens to 'review and reconsider' NZ operations if Reserve Bank pursues capital ratio changes'.
ANZ group chief executive Shayne Elliott has threatened to review the "size, nature and operations" of the New Zealand business if the Reserve Bank implements its proposed changes to capital ratios, according to his submission released publicly today.
The capital changes would see ANZ Group reduce investment and reallocate resources away from New Zealand to more profitable businesses, Elliott says.
"This may also lead the New Zealand business to reduce operational costs (including employee costs)."
It may also require ANZ Group to "dispose, or cease operation, of the relevant underperforming New Zealand assets or businesses".
Unquote:
Blackmail much ?
Excellent – so the cute kid, puppy dog, soft focus smiley first home owner’s the bank cares type adverts are again revealed for what they really are – branded drivel.
No surprise, ANZ’s only interest – to maximize shareholder returns – everything else – pfft.
I trust NZ customers will now also "review and reconsider" their relationship with ANZ.
Yep. The banks can NOT raise interest rates on mortgages because people can't take on higher priced debt. Therefore the banks can NOT raise savings interest rates to attract more capital and improve their ratios. Therefore it MUST come out of their profits and WILL affect their share price.
In other words: do NOT pass GO, do NOT collect $200.
"Keep your stinking $2B profit a year NZ, or better yet give it to Westpac or BNZ... We're outta here!"...
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Can't see it happening myself.
Here's David Hisco from early May on ANZ potentially floating ANZ NZ on the sharemarket or selling out of NZ;
"If you work it out you find it's actually quite difficult for that to occur. The [share] market wouldn't actually be able to absorb it so you couldn't float it in New Zealand. So then it comes down to whether there's somebody else out there in the world that wants to buy a bank in New Zealand. And last time I looked [with] National Bank, Lloyds wanted to get out and they sold it to us. I don't know what's going on on the other side of the world these days but everyone seems to have their own problems. So I'm not sure how practical that really is."
Put a steering wheel in kiwibank and let her rip......
All government spending local and national
All government banking
chuck 5% GDP at a project like that and up the big four and save the nation.....
Special Kiwibank rates, and a few extra basis points here and there for offshore banks to compensate...
President of Property
PS: what's with all this Mr Key business. It's Sir to you....
PPS: Prime Minister Jacinda Ardern could say if he's running the bank like he ran NZ expect a new logo and a number of issues....
Gotta love this woman! Just looking at her performance she nails it! The banks true colours coming out and we need a Government to stand up to them, and JA is showing she is prepared to if she needs to.
And to SmoKey above for quoting the NZ Herald headlines - great context! Again the banks are trying to flex their muscles. Now look for an advertising campaign that tries to identify just how hard done by the banks are. More wasted money. But I do recall someone pointing out that a US president, possibly Eisenhower tried to take the US banks on and lost. This could get very ugly yet!
· The potential reallocation of bank capital towards the housing sector would increase the concentration risk on this sector and leave banks more exposed to any sharp correction in residential property prices, potentially increasing financial stability risks.
The fact that ANZ can emphasise this line of established blackmail because it is already, but erroneously, enshrined in bank credit risk supervision is a catastrophe that needs to be addressed urgently.
Let's look at the evidence:
Australia’s banks turned into giant building societies, lending almost exclusively against residential property and rarely, if ever, making unsecured loans to businesses or people any more.
If someone asks for a business or personal loan these days, the banker asks for the house.
The result is that traditional small business lending has dried up, and with it business investment, while Australia has the highest ratio of household debt to GDP (134 per cent) in the world, since business owners have to borrow against their houses.
And, by the way, the upward pressure on values from banks has probably contributed to the over-pricing of Australian real estate.
As a result of a combination of the “risk-weighted assets” system and the credit crisis, banks have basically withdrawn from the thing they were set up to do: facilitate commerce.
It is time to use the power of the monetary system for the good of the people. This can be done by being aware of the basics of money: it is best measured by bank credit, since banks create the money supply through their credit creation. Moreover, the credit data can be examined to identify the use of the newly created money: This delivers three basic scenarios concerning the role and use of bank credit (Werner, 1997, 2005; Figure 7):
Firstly, if domestic banks extend credit mainly for consumption, then final demand increases by the amount of loans, but there is no increase in available goods and services. Hence prices have to rise. This consumer price inflation scenario is the first one would normally think of when considering an expansion in the money supply. But it is a special case. In the UK, more common is the second case: The majority of bank credit creation in the UK is not even used for transactions that contribute to and are part of GDP, but instead is used for asset transactions. They are not part of GDP, since national income accountants require a ‘value added’ for inclusion in GDP, not just the shifting of ownership rights from one person to another. When bank credit for asset transactions rises, asset prices are driven up, because the loans do not transfer existing purchasing power, but instead constitute an increase in net purchasing power: money is being created and injected into asset markets. When a larger effective demand for assets is exerted, while in the short-term the amount of available assets is largely fixed, the price of assets must rise.
Such asset inflation can go on for several years without major observable problems. However, as soon as the credit creation for non-GDP transactions stops or even slows, it is ‘game over’ for the asset bubble: asset prices will not rise any further. The first speculators, requiring rising asset prices, go bankrupt, and banks are left with non-performing loans. As a result they will tend to reduce lending against such asset collateral further, resulting in further drops in asset prices, which in turn create more bankruptcies. When asset-based lending had become a major part of bank portfolios and when banks had already driven up asset prices by several hundred percent due to their excessive asset-based credit creation, then it is inevitable what will follow: bank equity is usually less than 10%, and thus asset prices need to fall only by a little more than that – which is not difficult, after rises of several hundred percent – and the banking system is bankrupt: losses from non-performing loans have to be made up from equity (if no other funds are available, which is usually the case in such situations).
Thus a full-blown banking crisis must follow after a bank-credit driven asset bubble. One does not need to be a central banker to know this very well. (Why, then, did the ECB allow 20% or more bank credit growth in Ireland, Portugal, Spain and Greece, for several years? Such high credit growth is clearly in excess of nominal GDP growth and hence it is clear that it must be creating unsustainable asset bubbles that result in banking crises – as the Quantity Theory of Credit has postulated since its inception in 1992; Werner, 1992, 1997; 2012, 2013).
There is a third, redeeming case: When bank credit is used for productive investments, such as the implementation of new technologies, measures to increase productivity or the creation of new goods and services (whose value is higher than the mere sum of their inputs, thus adding value), then such new money creation – which always happens when banks grant credit –will not result in any form of overall inflation – neither consumer price inflation nor asset price inflation. This is because the new purchasing power that is created is used to produce higher value added output and hence the extra demand due to the money creation is met with a higher supply. By ensuring that money and credit are only created when something real is created, i.e. for productive purposes, one can achieve very high economic growth without inflation, without crises and in a relatively equitable way: This is how the East Asian ‘miracle economies’ of Japan, Taiwan, Korea and China, developed so quickly. By using regulation to ensure that bank credit is only created for productive purposes, high growth can be achieved, even when the economy is already at an apparent ‘full employment’ level, because productive investment credit improves the allocation of existing resources, however limited, by mobilizing both supply and creating the necessary demand for the output.
Link - section - III. Successful Development Policy: Harnessing Money and Institutional Design
Simple question: apart from working in a fish & chip (once), what would she know about running a business or an economy?
While bashing banks is popular past time for the left it doesn't actually change reality. Lifting the capital requirements will have an effect on an economy. Whether a person thinks the trade-offs are worth it is a political question but to ignore this fact is either stupid or disingenuous.
What if the increase in capital is mandated/recommended by The Basel Committee on Banking Supervision (BCBS) for all the Banks in the world ? Will not NZ accept and implement the same ? Such increases have been implemented in the past without any worry about the cost to the economy. The cost is a red herring by the Banking lobby. Ultimately it is the safety of the banking system and protection of customers that governments need to focus on. Especially when talk of the imminent GFC II is already making headlines.
Seems like Mr Key is still trying to keep the property ponzi scheme going. Thanks for nine years of a "False Economy". What, has all the money gone along with the foreign investors "Poof with a puff of smoke", you say. Might be best for us all to avoid ANZ, sounds as though they're on shaky ground if they can't for fill their requirements for them to hold more capital.
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