Those watching the parliamentary banking inquiry hearings have had front row seats to a curious phenomenon; MPs from the government's right-leaning parties effectively questioning the right of private businesses to make their own decisions.
The phenomenon I'm referring to is MPs getting grumpy about banks lending how and to whom they choose, whilst taking into account laws made by politicians and other policymakers.
At the centre of this are questions about "greenwashing," "playing the moral police," and allegations of banks restricting credit availability to farmers and fossil fuel-related industries such as petrol stations, the oil and gas sector and mining. Some MPs have questioned whether banks are even taking on the role of politicians and policymakers when they're merely "unelected banks."
Fuelling an aggressive approach from the National and ACT parties' MPs is lobby group Federated Farmers, which has been on the attack over banks' sustainability, environment and climate-related stances for some time.
Interestingly it has taken Chloe Swarbrick, co-leader of the left-leaning Green Party, to point out the National and Act MPs are essentially arguing against free market capitalism by trying to tell banks how, and to whom they should lend.
No one's simply entitled to a loan from a private business. The business has a say in how and to whom it lends. In terms of banks' legal right to determine who they lend to, and when they can terminate a banking relationship, the MPs might want to keep in mind three court cases over recent years.
The first one is a BNZ v Gloriavale Court of Appeal judgment out last year. This one overturned a High Court interim injunction, which had prevented BNZ from debanking Gloriavale entities.
The second one was a 2023 High Court judgment backing Westpac New Zealand's right to withdraw banking services from a company associated with Russian oligarch Alexander Abramov.
And the third one was a 2016 High Court judgment ruling it was lawful for Kiwibank to close the account of remittance company E-Trans International Finance.
Perhaps to circumvent this, or get one up on ACT, NZ First's Shane Jones announced in a speech on Friday he plans to introduce a Members Bill forcing banks to stop "holding our economic development to ransom to suit the privileged cabal employed on environmental, social and inclusion matters." Quite how this could work, and who will support his bill, remains to be seen.
The tension in the middle of all this is banks are at the centre of the economy. It can be tricky doing things without one. Even the NZ arm of cryptocurrency exchange Binance wants a local banking partner. And of course, if you want to borrow money in NZ, banks are the main event.
Banks are also in the frontline of implementing government policies such as getting to net zero greenhouse gas emissions by 2050, even if the political will to do so is half-hearted, and trying to prevent money laundering and the financing of terrorism. In lending to farmers, banks may want to clarify that resource consent, environmental and animal welfare standards are being met. If government MPs don't like such policies, they can seek to change them.
Ultimately banks are in the business of risk management. They lend money they want to get paid back, with interest of course. If they decide a certain industry is facing a sea-change in coming years, making it a riskier borrower, they may reduce their lending exposure. They may not always get the decision or its timing right. But this is what's happening as the world moves to decarbonise.
The push back against banks witnessed at the select committee hearings may gather pace in the short-term as politicians, lobbyists and others, are emboldened by the return of a certain person to the White House. However, even the US President's powers face limits with 24 US state governors remaining committed to the Paris Agreement despite Donald Trump withdrawing his country.
A rare constant in life is change. It comes at you whether you like it or not. If you don't adapt you get left behind. And that goes for both banks and their customers.
*After I wrote this article, ACT's David Seymour said the Government should consider withdrawing from the Paris Agreement.
*This article was first published in our email for paying subscribers first thing Tuesday morning. See here for more details and how to subscribe.
32 Comments
Trading banks are private enterprises, with the right to choose their customers, and exclude those they dislike (or fear other customers might disapprove of, such as unpopular sects, and coalmines).
However, there must also be a right for every person, and every legal entity, to have a basic bank account, because to be denied a bank account is to be excluded from the economy, and ultimately from society.
We should all have the right to a basic bank account at the Reserve Bank, the state bank, and avoid private trading banks if we want to (or if they want to avoid us).
As for the 'right' to borrow: perhaps Shane Jones needs to resuscitate the State Advances Corporation.
From the Netherlands: A company can, under certain circumstances, force a bank to enter into a banking relationship. However, the relationship between the company and the bank is likely to be limited to the use of a bank account and will not include additional services (granting credit, depositing cash).
https://www.lexology.com/library/detail.aspx?g=0aee8ff0-a1de-4d24-8308-…
It's amazing that MPs are not cognisant that the Government has persistently effectively ceded operational control of the economy to the private banks. The net effect of this is our transition from being one of the most productive countries in the world in the 1970s and earlier, to one of the least today. On that alone, no one could convince me that the banks lack of regulation and resulting power is a good thing. (Yes I am aware there are some who argue that the banks are heavily regulated).
I am hopeful that this review might lead to some change.
Prior to the Lange/Douglas government reforms banks were tightly controlled in terms of their lending.It was called the corset in banking circles. This gave preference to primary production and industry. Trading banks were barred from home mortgages except for the very restricted savings bank entities they were allowed to open in the late sixties. When the reforms opened it up the banks discovered they weren’t particularly good at open slather lending, partly a reason why the BNZ is no longer NZ owned. All banks operate under a charter and what is decreed in that is what rules. What is described in this column therefore offers a fair dollop of irony as Chloe has correctly pointed out and as a modern colloquialism demonstrates the worth of - being careful with what you wish for.
And Chloe quite rightly pointed out they were PRIVATE banks. Unstated is that they will always operate in their own best interests. Interestingly, history teaches us that their view of their best interests is very much a short term one. While snatching short term profits, they could well be shooting themselves in the foot in the long term.
Conspiracy theorists could have a lot of fun with this......
Yet Chloe Swarbrick has been quite happy to dictate to banks about credit policy in the past when it suits her interests
https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audi…
To suit her interests? Dictating to the banks?
As the article explains, she's seen a discrepancy, an injustice one might say, and asked the appropriate govt committee to investigate further.
What she's done in the current situation is rightly highlight the current hypocrisy and contradictions. She's not telling them how to fix it, but simply providing an opportunity for the ministers to reflect and listen to themselves and what they're saying.
It's either allow The Market absolute free reign or regulate it for the betterment of the people and society, as is their purpose.
Chloe was ultimately successful in getting banks to change their policy on shoebox apartments, to the benefit of those existing owners who were able to sell at inflated prices, and the real estate agents who collected commission on the transactions.
The main losers from the policy change were the banks who watched the value of the loan securities crash harder than other types of properties (which is why greater deposits were required in the first place) and the new purchasers who Chloe had advocated for.
Seems the banks may know more about managing their commercial risk than a two term MP with no professional background.
The main hypocrite from all of this appears to be her though, unless she's now seen the error of her ways and decided it's better for banks to make decisions on who they lend to rather than politicians?
Somehow I doubt that's the case though (it would be inconsistent with her entire ideology) and her protests about private businesses making their own decisions are nothing more than political opportunism.
When lassaiz-faire is the predominant mantra shouted from the ivory tower, from the prophetical pedestal (without any real understanding what it means), it's very difficult to realise ultimate power has been given to The Market, the multinational corporations, and especially the FIRE industry.
Govts. have effectively ceded power to the banks by allowing them to create credit, to print a nations money. Ultimate power has been ceded to central banks as monetary policy has the biggest effect on the economy. Govts are inept, merely jumping along the spectrum of authoritarianism, fuelled by their own lust for power.
At the end of it all, it is us the people who have ceded ultimate power to these various institutions. We bought into the narrative and programming of getting rich and monetary wealth. We have given the power to money, economics and capital, to narrow minded beliefs about human nature, and now we can't see our way out of it. Yet we'll keep believing govt, economics, technology and productivity will solve the problems.
At the end of it all, it is us the people who have ceded ultimate power to these various institutions. We bought into the narrative and programming of getting rich and monetary wealth.
Those working and voting of the time, and those in parliament of the time bought into it. The rest of us who came later had no say in the matter given these decisions were before our time.
Do we know what the reason is the risk is so low on ‘green loans’ that top-ups are available at 1% interest rates?
https://www.bnz.co.nz/personal-banking/home-loans/manage-your-loan/top-…
These are available for the purchase of depreciating assets such as new EVs even.
Or is it possible that something else is going on here that doesn’t reflect the level of risk?
It was probably done as part of a corporate social responsibility effort, and banks offering it because other banks are.
I have personally taken advantage of it (our last two hybrids, and an EV), as well as ducted heating and solar.
It’s only 1% for three years though, so it is in your interest to pay it off in that timeframe. And the same application and qualification process happens as for other loans, if you were seen as high risk you simply wouldn’t get it.
Agreed, I think all these policies are unrelated to the actual credit risk as this article disingenuously asserts.
Unfortunately for those in unfavoured industries it doesn't matter whether they are able to repay the lending as the application and qualification process isn't available at all.
Report in the NZ Herald from last week stated that BNZ were closing all bank accounts with a coal mining company. There’s no risk from letting them operate an account, unlike with lending.
It’s pretty clear that these decisions are based on PR/marketing rather than risk and it’s dishonest of journalists and media (an industry where public trust continues to sink to all-time lows) to pretend that it is.
https://www.nzherald.co.nz/nz/politics/bnz-tells-coal-mine-it-will-shut…
‘These include closing the mine’s asset finance facility by the beginning of this year, shutting lending facility by July, and cancelling credit cards and closing all accounts by 2030.
In the letter, BNZ said it was making the decisions in response to its coal mining policy which included capping coal exposure since 2019, exiting thermal coal mining by 2025 and exiting metallurgical coal by 2030. Metallurgical coal, known as coking coal, is used to produce steel.
“These are parts of BNZ’s commitments to the Paris Agreement on climate change. The bank wants to support customers’ transition, and where transition is not possible provide advance notice of exit dates for banking services such that customers can seek alternate providers,” the letter said.’
There are huge private equity and venture funds fund attracting investment that must go into green projects and non fossil activities. The banks are following the money, not just responding to PR.
In spite of Trump, Act and Fed farmers climate action will grow continue. Climate not listening to them.
That’s not what the BNZ says
The letter says that BNZ’s actions are part of their commitments to the Paris agreement on climate change.
The BNZ spokesperson says that they are aligning themselves with the NZ government’s net zero 2050 target.
It’s unclear how debanking rural petroleum stations 20 years before the 2050 deadline is in alignment
What will actually happen as a result of 'no new lending' to petrol stations? If that means only that they won't lend to new business owners, then fewer new ones may be built...and probably we don't need many more, given the way the fleet is changing, etc.
However, if it applies to existing owners, wanting to continue/renew their loans (does anyone know if this is the case?) then they may be forced to sell their businesses. And it may be hard to find a buyer, because the new buyer can't get finance...though there will likely be more expensive options from non-bank lenders. So, the value of the business will have to fall to find a buyer. Any new buyer under such circumstances will be starting with a cheaper property. I guess that could be beneficial for the new owner and operator (maybe they'll even pass on their lower costs by way of lower fuel prices). Or possibly there might be a buyer, who (even after remediation costs) could put the property to a different use. In cities, that's likely going to be the case (because it already is anyway, which is why the number of urban petrol stations is decreasing). In rural areas, probably not...so cheaper rural petrol perhaps, or richer future petrol station owners (at the expense of the current business owners, who take a hit selling to them)?
Anyway, 25 years isn't a long time to become net zero. If we're trying to keep financing petrol stations until say 2049, it can only mean it's not a serious proposal.
I hope climate action will continue to grow, if you mean an increase in renewables, decrease in emissions. Absolutely essential.
In the meantime we need some coal. Perhaps we could put together a list of customers who are so opposed to coal and gas that they are happy to have power cut if required. That would be truly noble.
There's also an argument that a more constructive approach for these (private business) banks is to tie further lending to these kind of businesses to the money being used to migrate to a low-carbon model of operation.
Simply cutting them off from funding and services may have the opposite-to-intended effect that makes them continue operate on old methods and technologies as they can't get development funding: virtue signalling having unintended, but easily foreseen, effects.
BNZ is a wholly owned subsidary of NAB right?
NAB is Australia’s most regressive bank when it comes to funding fossil fuels, having provided the most of the big four Australian banks in 2023 at $1.4 billion.https://www.marketforces.org.au/campaigns/banks/nab/
Haha this is textbook capitalist behaviour. Privatize any profits and socialize any losses, alongside the right to interfere in private business when it suits their agenda, but throw up their hands and say they cant touch private business when it doesn't their narrative.
The more stories like these come out, the more you realize that NZ isn't as 'non-corrupt' as we think. Remember only USA and NZ have legal lobby groups that throw thousands/millions/billions at elections. Seem to recall there was a business in New plymouth that donated crica $50k to a local MP in the Northshore of Auckland at the last election- which literally makes no sense as they did not have any business in AKL. There was a small story on it, but no deep journalism as to why this was the case.
I wish more banks had the mana to do what BNZ is doing. Really shows you how much power the big oil companies have that they can pressure the govt to come out and say what they've just said.
The world is going mad and some private market believers are showing their true colours.
A private enterprise can choose who they do business with or else it’s not a market but central control.
If enough people,entities are not banked someone will see an opportunity and bank them - supply and demand.
It’s not a right to have a private company bank you or insure you. They take a risk and need to decide if it’s viable etc so they can make a profit - it’s called the market.
If the Government dosnt like it instruct Kiwibank to fund all these farmers, petrol stations, coal mines whoever and they have a bank!
If risky clients never pay their bills or are repeatedly caught shoplifting, they why should the owners not be able to choose to not do business or ban those people. When it comes down to political or social behavior, aka no criminal or antisocial then I agree that is a stretch of mandate. Perhaps banking licenses should reflect that.
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