Labour's Arena Williams says the Government needs to commit to increasing banking competition, not reducing financial regulations

By Arena Williams*

ANZ posted a $2.29 billion profit last year, while BNZ raked in a near record $1.51 billion, yet somehow, the big banks have convinced the Government they need a helping hand. 

The emotional twists and turns these highly paid banking executives have had to endure from Nicola Willis have been a rollercoaster, but no Finance Minister serious about banking competition would've ended their wild ride here. 

Last year, following the Commerce Commission’s market study into retail banking, Willis declared she was coming for the banks. Competition in the banking sector resembled a “cosy pillow fight,” she said, and she promised that the Government would “respond with urgency to all 14 of the report’s recommendations.”  

More recently, banks have found themselves under fire again- this time from National and New Zealand First, who have accused them of being too “woke.” A Members’ Bill recently pulled from the ballot would require banks to provide services unless they had a “commercial reason” not to. Never mind that assessing exposure to risks in industries like mining is a standard practice worldwide—the message was clear: enough talk about climate and social responsibility; it’s time to focus on making money.  

The banks appear to have taken that advice to heart. Last week, ANZ announced what commentators have called its most profitable quarter ever, raking in an average of $10.22 million per day across the December 2024 quarter. With profits at $2.29 billion, ANZ’s CEO described this as “a fair return for our shareholders.” That equates to a 14.1% return on equity, up from 9.2% in the same quarter the previous year. New Zealanders looking at the returns on their own savings might think that’s a little more than fair.  

Market power allows businesses to set prices rather than having them dictated by competition. In most industries, customers have alternatives - if movie tickets are too expensive, people stream movies at home instead.  

But banking is different. Anyone who wants to buy a house needs a mortgage, and access to banking services is a non-negotiable part of modern life. Banks set the terms, and New Zealanders have little choice but to accept them.  

One of the few checks on this power is the threat of government intervention. But if banks were truly worried about the Government taking action, would they be posting record-breaking profits?  

For all of Willis’ tough talk, how many of the Commerce Commission’s 14 recommendations has the Government actually acted on?  

After months of complaints about both excessive bank profits and insufficiently commercial social activism, it seems that the Minister of Finance and the big four banks may have found something they can all agree on. Too bad New Zealanders lose out. 

Last week, Willis confirmed she had sought advice on whether she could compel the Reserve Bank to reverse its 2019 decision to increase banks’ capital requirements. If the Reserve Bank won’t budge, she suggested she may change the law to force the issue - a dramatic shift given New Zealand’s long-standing commitment to central bank independence.  

When appearing before the Finance and Expenditure Select Committee this week, bank executives were quick to blame capital requirements for high interest rates. They have been increasingly vocal about this issue following the sudden resignation of Reserve Bank Governor Adrian Orr. Victoria University’s Martien Lubberink described the spectacle as being “like vultures circling a carcass.”  

Willis appears to believe that rolling back capital requirements will ease pressure on banking competition while also boosting bank profits. But as Lubberink and the Reserve Bank have pointed out, there is little evidence that reducing capital requirements will deliver much-needed economic growth.  

And there is a clear trade-off: lower capital requirements reduce the financial system’s resilience. Capital buffers exist to ensure banks have enough skin in the game to absorb losses from bad lending decisions. When those buffers shrink, the risk of economic instability rises—often leading to bank bailouts at taxpayers’ expense.  

This is a delicate balance. But given that banks are making record-breaking profits, there is already plenty of room for them to offer New Zealanders better deals without increasing risk to future generations. As the recently departed Reserve Bank Governor argued in February, the strength of banks’ profit margins suggests they have ample space to “chase and compete for customers much more vigorously.”  

What’s needed isn’t weaker financial regulations - it’s a Government that is actually committed to increasing banking competition and delivering a better deal for New Zealanders.

*Arena Williams is the Labour Party MP for Manurewa and the Party's Spokesperson for Commerce and Consumer Affairs.