At a press conference yesterday, RBNZ Governor, Adrian Orr, publicly lashed the New Zealand Bankers’ Association (NZBA) for claiming that taxpayers should bail the sector out in the event of a crisis, and has used these comments as justification for the RBNZ’s capital reforms. From Interest.co.nz:
Orr was answering a question about NZBA’s claim that the Reserve Bank’s proposals to increase banks’ regulatory capital requirements could cost households, businesses and the economy about $1.8 billion a year.
After indicating he didn’t agree with this, Orr said: “What was one of the interesting ones from NZBA? That at the end of the day if banks fail it should be our fault and we should pay them out anyway.”
This, he said, was in NZBA’s submission which he found “astounding.”
He was referring to a comment in a report by Sapere Research Group that was commissioned and submitted by NZBA. It outlines a bank crisis scenario where it’s suggested the Government, meaning taxpayers, should take the hit rather than bank depositors. Note, bold added by me for emphasis.
“We have some concerns that the OBR [Open Bank Resolution policy] is being assumed to provide a ‘bail in’, whereas it seems to us highly unlikely that any government would allow all depositors in a major bank to take a haircut. Depositors would have a right to argue that the Reserve Bank should have seen this coming and that as the government’s designated regulator of the banks, the government should take the hit rather than the depositors. Depositors are poorly placed to monitor the performance of their banks in contrast to the regulators who have better information and a duty of care to the depositors. Requiring banks to hold additional Tier 1 capital would seem unlikely to be the most efficient method for managing these risks,” the Sapere report argues…
“There are a lot of interesting assumptions across a lot of the submissions, particularly from those who are the ones who may be facing higher capital requirements,” said Orr…
“We are wide open to do the right thing by the country. But we want more capital, we want good quality capital in this country because it’s the well capitalised banks that are in the long-term the most sustainable and profitable.”
What a legend. Could you imagine captured APRA taking similar aim at the Australian Bankers Association? Not a chance. Instead APRA is busy eroding lending standards by shredding its interest rate buffer just months after the Hayne Royal Commission lambasted Australia’s banks for shoddy lending.
While the RBNZ acts prudentially, APRA is working hand in glove with the banking sector to pump out more mortgage debt to marginal borrowers.