Think-tank lays complaint with Reserve Bank and minister over Orr’s barbs
The New Zealand Initiative has laid a complaint with the Reserve Bank and Finance Minister Nicola Willis, alleging the bank’s governor, Adrian Orr, may have breached the bank’s code of conduct in a letter chastising the economically liberal think-tank.
The complaint was made against the backdrop of a difference in opinion between the Commerce Commission and the Reserve Bank over whether the bank’s regulatory settings may have contributed to a lack of competition in the banking sector.
Orr wrote to the New Zealand Herald in response to an article it published, authored by NZ Initiative chairperson Roger Partridge, that criticised previous decisions by the Reserve Bank to raise banks’ capital requirements and that accused the Reserve Bank of “regulatory excesses”.
Orr flatly rejected the criticism, as he has done in other forums, labelling it “tired, misleading”. He raised the ire of the New Zealand Initiative by appearing to insinuate that the think-tank — whose members include ASB, ANZ, BNZ and Westpac — was simply reflecting the views of the banks, also querying whether those views were held in good faith.
“The author lays blame for the lack of competition in the New Zealand banking sector at the feet of the Reserve Bank’s capital requirements and credit-risk weights for retail banks,” he wrote, referring to Partridge’s article.
“I am unsure what to be most concerned about: That the retail banks who are members of the NZ Initiative believe this? Or, they don’t, but are still willing to sponsor this?”
The NZ Initiative took offence at the broadside, including the reference to sponsorship.
Its executive director, Oliver Hartwich, labelled Orr’s comments “absurd”, saying it had made a complaint to the “right people” and was awaiting a response.
The big four banks had not been consulted on Partridge’s article and had not even seen it prior to publication, he said.
“I don’t have a problem with him taking a different position. It is not about the issue. It is more about the tone of the letter he sent, which we didn’t like,” Hartwich said.
The Reserve Bank’s code of conduct stipulated it treated others fairly and with respect, he said. “We don’t think his actions comply with that.”
Willis said she had spoken to Reserve Bank chairperson Professor Neil Quigley about the complaint and advised him that if asked about the matter, she would convey that was a matter for him, and not for her as minister.
“This is exactly why the employment of the Reserve Bank governor is independent of the Minister of Finance. His employment is a matter for the Reserve Bank board and its chair,” she said.
Quigley told The Post he had received the NZ Initiative’s letter but wouldn’t be commenting on it at this stage.
Orr has previously used blunt language to dismiss the Commerce Commission’s concerns about its possible role in influencing the level of bank competition, telling Parliament’s Finance and Expenditure committee earlier this month that the watchdog should “stop chasing red herrings”.
He told the committee then that some critics of the Reserve Bank had blamed poor productivity growth on it attaching a relatively high weigh to banks’ mortgage loan books, in comparison to the value of their business loans, when assessing banks’ financial strength.
“That is poor analysis,” he said.
Orr also said the Reserve Bank was also being wrongly blamed for raising the amount of capital banks needed to have on hand, as a proportion of their loan books.
“When I last looked, New Zealand banks were making some of the highest returns on capital in the world,” he told MPs.
That was true before and after the Reserve Bank raised their capital requirements, he said.
“What does that tell you? It tells you that they have been able to increase their margins to retain their return on capital, which means there's not much competition, fullstop.
“The more we chase those red herrings, the less likely we will ever have a competitive financial system.”
The solution to improving bank competition lay instead in “open banking, data transferability and allowing technology to come in”, Orr said.