Reserve Bank governor Adrian Orr questions Sir John Key's ANZ directorship
Tuesday, 4 June 2019
Reserve Bank governor Adrian Orr says it is time to consider whether the heads of New Zealand banks, such as former prime minister Sir John Key, should also be directors on the boards of their Australian parent banks.
Orr was responding to a question from Sam Stubbs, founder of the Simplicity KiwiSaver scheme, at an Auckland lunch hosted by health insurer Nib.
Stubbs asked whether Key, and BNZ chairman Doug McKay, had conflicted loyalties because of their dual directorships.
The Reserve Bank governor said it was something that was allowed under current banking rules, but acknowledged it could raise issues of divided loyalties in times of crisis.
'In fair weather it's great, but in foul weather, whose interests are you acting in?' Orr said.
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Orr denied he was sending a pointed signal to the two banks to make changes, but said: 'It's something we have to think really hard about.'
Stubbs said he did not believe directors should be in positions of conflicted loyalty.
'It should be at least strongly discouraged and probably outlawed.'
'In theory someone could say, 'I'm on the Australian board representing New Zealanders, and that's great,' he said.
'The problem is when things go wrong, you don't want a director, no matter their calibre, where they are conflicted in who they look after in times of stress.'
When there was a choice of withdrawing capital from New Zealand to support the Australian business, whose interests would dual directors serve, he asked.
'Who is John Key representing then? I want to know John Key is fighting for ANZ New Zealand under any circumstances.'
Key has been under fire since ANZ suffered the humiliation of being stripped of its right to self-monitor its capital buffers.
The move by the Reserve Bank on May 17 has left ANZ as the only one of the big banks not trusted by the banking regulator after it found 'a persistent failure in its controls and attestation process' with directors not having identified the problem since it began in 2014.
The failure has led to a call from former BNZ chairman Kerry McDonald for ANZ chairman Sir John Key to resign.
The Reserve Bank's move to strip the ANZ of some of its self-monitoring power, came in the midst of a battle between the big banks and their industry body, the New Zealand Bankers Association, over the central bank's proposals to require banks to hold more capital to strengthen them, and reduce the chance of them failing.
Orr said he had not been surprised at the capital and resources the banking industry had at its disposal when it was fighting to sustain the status quo.
'It's a very powerful industry,' he said.
The proposal would require banks to pump in fresh capital equivalent to 70 per cent of their next five years' profits.
But Orr spoke about his frustrations over the name-calling and insulting language that was being routinely used in public debates over issues, and he himself had suffered insults including people referencing the size of his waistline.
He had been surprised by the level of 'underlying venom' that he had felt during during the public relations fight over the Reserve Bank's proposals.
'People have been allowed to be quite above different parts of government and the central bank, and that's taken as normal,' he said.
Orr felt the banks, in trying to turn public opinion against requiring banks to raise more capital, were creating a narrow debate that focused on the short-term interests of their shareholders, and the narrow, short-term concerns of their customers.
Westpac made headlines when it warned the Reserve Bank's plan could add $6000 to the annual interest cost of an average Auckland mortgage.
Orr said the debate should have a wider focus, including the interests of taxpayers, and future generations, saying it was really a debate about how much risk New Zealand was willing to accept.
He felt the proposal got the capital level required right, seeking to prevent a one-in-200-year-scale banking crisis.
He said the Reserve Bank was being careful to consult on its proposals carefully, mindful of the threat banks could seek a judicial review if it made a mistake.