Finance Minister Grant Robertson pleads for 'mature debate' amid war over bank capital

Wednesday, 3 July 2019

ANZ has warned the Reserve Bank's plan for capital could push more money into housing.

Finance Minister Grant Robertson has urged the financial sector and regulators 'to listen to each other' amid a fight over a plan to improve bank safety.

Amid claims that the plan would shrink the economy and may cause major institutions to pull back from New Zealand, Robertson issued a statement which appears to be an attempt to prompt discussions between the banks and the independent central bank.

The Wellington-headquartered Reserve Bank has proposed requiring banks to hold significantly more capital on their balance sheets, which would mean the New Zealand incorporated banks would have to hold around another $20 billion in capital.

The plan, revealed in December, was far more strict than the sector or financial markets had expected.

Finance Minister Grant Robertson has struggled to stay out of an increasingly tense fight between the Reserve Bank and the banks it regulates. But on Wednesday Robertson called on 'all interested participants to listen to and work with each other constructively'.

* Could ANZ 'pull back' from New Zealand?

* Kiwibank warns it could be starved under Reserve Bank plans**

The Reserve Bank is putting pressure on banks to hold more capital.

The Reserve Bank has said the move would help the sector to withstand the type of financial shock which occurs around once every 200 years, claiming there would be only a limited impact on customers.

On Monday the Reserve Bank released submissions on the plan, and while most of the submissions by number were in support of the plan, the banks themselves are pushing back hard, warning it will push up borrowing prices, especially to businesses and farms.

ANZ's submission issued a warning that if the plans went ahead it may review the scale of its New Zealand operations, while the New Zealand operation of the branch warned it would end up meaning the economy of New Zealand would be smaller.

Kiwibank, meanwhile, dismissed the claims of the Reserve Bank that the proposals would remove some of the advantages of the 'big four' Australian-owned banks. It said that the plan would have the opposite impact, giving greater advantage to its larger rivals and may see its shareholders starve it of capital.

Earlier, the New Zealand Bankers' Association issued a joint submission on behalf of all the banks against the plan.

It pointed to earlier 'stress tests' by the Reserve Bank which claimed that the banks were strong enough to withstand severe economic downturns without needing to raise capital.

Reserve Bank governor Adrian Orr has been dismissive of critics, telling media he was unimpressed by the level of opposition.

Robertson has largely stayed above the debate, pointing to the Reserve Bank's independence and the need for a healthy banking sector.

But Robertson on Wednesday issued a message to the sector that the issue required 'mature debate' about the settings of the sector.

'I want to remind all parties that we are still in a consultation process. I am calling on all interested participants to listen to and work with each other constructively as this work is carried out.'

NZBA has declined to comment on the statement.

A spokeswoman for the Reserve Bank did not respond directly to questions but said in a statement that the bank was following an open and transparent process.

'We are continuing our stakeholder outreach programme. This includes conducting focus groups to understand the public's risk appetite, and engagement with iwi, social sector and industry groups, financial institutions and investors. We have also engaged three external experts for an independent review of our proposals.'

The war over bank capital has come as the ANZ comes under regulatory scrutiny.

On the day the submissions on the capital proposals closed, the Reserve Bank issued New Zealand's largest bank a censure over its use of an unapproved model to calculate its operational risk, without knowing.