The bosses of ANZ and BNZ were back in the banking inquiry hot seat on Monday for the second time in six months, appearing before members from Parliament’s Finance and Expenditure and Primary Production select committees.
This time around regulatory capital requirements were a topical focus with both ANZ CEO Antonia Watson and BNZ CEO Dan Huggins being asked by Act’s Mark Cameron how much money would be circulated in the economy if the amount of regulatory capital the Reserve Bank expects banks to hold was reduced.
The Reserve Bank (RBNZ) increased the capital requirements required by banks in 2019 after making the assumption New Zealand wasn't prepared to tolerate a system-wide banking crisis more than once every 200 years. Cameron asked what reducing this to 100 years could mean.
“Have you done the numbers, you guys are bankers?” Cameron asked Watson.
Watson said ANZ hadn’t done the numbers, although the bank could.
“You'd have to make some strong assumptions,” she said. “But if that changed overnight, we would see downward pressure on pricing to consumers and business customers. And by business, I include agri because they’re businesses.”
Cameron asked Huggins if BNZ had teased out how much money could go back into the wider economy if the 200 year capital setting was reduced to 100 years. Huggins said BNZ had run the numbers but they came with caveats.
“It depends on different banks, advanced models. So I don't have access to all of their models, but roughly based on our numbers, we said, you know, the average of all loans is roughly 30 basis points at the moment,” he said.
“I think there's roughly $600 billion worth of loans in New Zealand. So if you see 30 points across all of those loans, then you're talking $200 million roughly, you know, plus or minus. So it's a big number.”
The increased capital requirements were finalised during Adrian Orr’s second year as RBNZ Governor. At the time, the new capital requirements were described by the RBNZ as the “most important component” of the central bank’s regulatory framework for banks.
Orr quit the RBNZ last week after spending seven years as Governor.
National’s Ryan Hamilton asked Huggins if he thought banks’ capital requirements were too restrictive from a personal perspective.
“I’m not here in a personal capacity. The only reason you're interested in talking to me is because I'm the CEO of BNZ, not because it’s Dan Huggins,” Huggins replied.
He added there was a conversation to be had about what were the right settings to manage financial stability and the impact of those risk settings on cost and efficiency within NZ’s economy.
Hamilton asked BNZ Chairman Warwick Hunt if he had a view and Hunt described the capital requirements of banks being at the “very conservative end”.
Cameron Brewer, the Finance and Expenditure Committee’s Chairman, asked ANZ’s Watson if the RBNZ reverted to its former capital requirements from prior to 2019, would they be appropriate for NZ today.
“We felt that they were appropriate at that time and I think now we're in another time we'd have to look at them. But that's why I think it'd be a really good idea to look at them, you know, across the globe, how does New Zealand compare?” she said, adding this would give an “apples for apples” comparison.
Brewer also wanted to know how NZ compared to Australia and other “like-minded” countries when it came to capital requirements and Watson said it was “very high”.
“So for example, in Australia we have a buffer that's added to the number that our models calculate for risk weighted assets. Buffer in New Zealand is 1.2. The buffer in Australia is 1.1,” she said.
In their previous appearances at the banking inquiry, Watson was asked if NZ’s largest bank was “milking farmers” while Huggins revealed BNZ wanted to wind up all outstanding loans to petrol stations.
On Monday, Watson and Huggins were each grilled over 90 minute slots and faced more intense questioning compared to their previous submissions.
Brewer is the new Chairman of the Finance and Expenditure Committee (FEC) following the demotion of previous chair Stuart Smith in January.
Smith had led the FEC since the Coalition Government formed in 2023 and had been at the forefront of the banking inquiry whereas Brewer only joined the inquiry when he became FEC Chairman.
The FEC then made the decision in February to recall the bosses of NZ’s four largest banks for a second round of inquiry hearings after the committee heard submissions from banking reform activists.
Brewer said in February recalling the big bank bosses would let the committee focus on specific issues that have been raised during the inquiry so far, including excessive profitability, competition pressures, debanking, and service in rural communities.
Barbara Edmonds, the senior Labour MP on the FEC, had described the focus on Chief Executive pay and benefits in previous meetings during the banking inquiry had proven the inquiry to be a waste of time.
She said in February that economic rents, climate reporting obligations, and how banks price for small business and farm lending versus residential housing should be the focus of the inquiry.
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