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Parliament worried about banks restricting credit to businesses
April 8th, 2009Parliament’s Finance and Expenditure Select Committee has warned it is concerned New Zealand’s Australian-owned banks are restricting credit to businesses unnecessarily and agrees with Reserve Bank moves to pressure the banks to treat New Zealand customers the same as Australian customers.
The comments came in the committee’s annual financial review of the Reserve Bank of New Zealand published on Friday to little media fanfare.
“The Reserve Bank Governor noted concerns that “as far as Australasian banks are concerned, New Zealand should always be considered a core market”, and he would not wish to see a “home-country bias” to Australia,” the committee said.
“We are concerned that New Zealand businesses find it increasingly difficult to access credit from the major Australian-owned banks, where lending decisions are reportedly now being made by offshore bank parties rather than onshore relationship managers,” the committee said.
“The Reserve Bank told us that there is widespread concern about this issue, and that it had discussions with the banks,” it said.
“We sought assurance from the governor that the Australasian banks treat New Zealand corporations and Australian corporations of similar financial strengths identically, and avoid any perception of New Zealand being treated as a marginal market,” the committee said.
“The governor told us that he could not give us such an assurance, and that the Reserve Bank was pressuring banks not to discriminate against New Zealand corporations unjustifiably. We agree with the governor, and urge the Australian-owned banks not to tighten the supply of credit to New Zealand corporations unnecessarily.”
The committee said it was also concerned that banks were not passing through the full extent of the Official Cash Rate cuts to their short-term lending interest rates.
“While the Reserve Bank has cut the OCR by 5.25 percentage points, banks reduced the floating mortgage interest rate by only about 4 percentage points. We remain concerned at the impact upon the economy of not passing through interest rate reductions.”
The committee expressed concern about fees for breaking fixed mortgages, saying it wanted more transparency from the banks and looked forward to further Reserve Bank updates.
Finally, it said it was concerned New Zealand’s financial system was vulnerable because it was heavily dependent on funding from the international market, adding the Reserve Bank was designing a liquidity policy for banks.
“The Reserve Bank’s intention is that banks will be subject to some disclosure requirements and some quantitative restrictions on liquidity management, such as a specified amount of liquid assets, and a specified proportion of funds that are sourced from long-term wholesale funding. The Reserve Bank expects that the policy will be formulated in May 2009.”
Tags: ANZ National, ASB, BNZ, CRAIG FOSS, FEC, Finace and Expenditure Select Committee, Financial Stability Report, Liquidity policy, Parliament, RBNZ, Reserve Bank of New Zealand, Westpac
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April 8th, 2009 at 11:12 am
The distortions in our economy that are producing this result need to be addressed.
Interest rates should reflect the willingness of people to save, (“supply” of investment) and the demand for productive capital (“demand” for investment). When other factors distort this relationship, we end up with the sort of trouble we have today.
Firstly, there are ways that the demand for productive capital can be destroyed. The operating environment for business is very very important. The level of corporate tax. Regulatory burdens and delays. Employment law.
Then, there are ways that other demands for investment money can starve productive capital. A bubble in property will starve productive capital of investment. It will do this regardless of what the Reserve Band does with the interest rate, if the structural reasons for the property bubble are not addressed. The reason is that the rate of appreciation of property in a bubble situation will always be much larger than the potential rate of profits from a business capital invesment. An interest rate that would put the brake on a property bubble, would kill all business.
The property bubble will burst eventually simply because incomes will be left further and further behind as the productive capital sector is starved and there are not the productivity increases to bring about the necessary increase in incomes. The property bubble is like a parasite or a cancer in the economy, multiplying and taking over the body and its organs.
Banks are central to this process. They are the sources of the debt on which both productive investment and property bubble investment is based. Productive capital investment has not been a sufficiently good look to them while the property bubble was bringing the best returns; and it is still not a good look to them even though the property bubble is unwinding.
We need to make investment in productive capital and business more of a good look to everybody. One problem is that even the business activity we HAD, was inflated by house price equity cash-outs and was largely consumption oriented.
We will need to readjust our whole thinking on the level of regulatory and taxation burden that we think business can sustain, and the level of government spending that our economy can sustain, and the level of environmental protection and resource lockaway that our economy can sustain. We should have been facing this reality ten years ago. But we have dug ourselves an even bigger hole meanwhile through having an economy increasingly based on the faery gold of property-bubble based debt.
We will not get out of this crisis any other way. We will not get banks lending to businesses whose ability to turn a profit is constrained by faulty political thinking regarding the ability of those businesses to pay for regulated levels of wages and holidays and maternity leave and health and safety and environmental protection and rates and taxes and employee savings scheme subsidies. Nothing will get banks lending to businesses, like loud and clear signals from government that business profitability is going to be unshackled by every means possible.
April 8th, 2009 at 11:18 am
It is no longer a question, as the small-minded anti-capitalists among us will insist it is, of allowing rampant “exploitation” of workers and the environment so as to fill the pockets of fat cat capitalists. It is not a question of a “right wing bonfire”, it is now a question of allowing some embers to take alight again. We need to be more grateful for paying jobs and less ungrateful about things like a bit of unpleasant smells on the job and in the neighbourhood, and a few missing trees; and a few less bureaucrats watching over everybody’s shoulders to make sure we don’t scratch ourselves.
April 8th, 2009 at 11:20 am
Daily reader – first time poster (overseas – USA – Iowa)…
I’m not an economist, but the situation in NZ appears to be a “slow burn” rather than the dramatic set of events that happened here in the USA last October. While it seems to be unfolding slowly, it would appear that the probability that the end result being much the same as in the USA is higher than some (i.e. Bollard) would seem to believe.
My take (guess) is this – long term money is leaving NZ, long-term interest rates are rising; short term money has pushed up the NZ$, which will make a recovery difficult. Reserve bank drops short term rate further, with little effect. Reserve Bank resorts to “printing money” to bring long-term rates down (and the NZ$)… Would this not in effect be a “re-balancing” with what is happening elsewhere in the world, and therefore, the relative long-term effects minimal if the Bank takes “the punchbowl” away at the right time???
Thanks for any comments.
April 8th, 2009 at 11:23 am
Suggestions linking through from here:
http://www.interest.co.nz/ratesblog/index.php/2009/04/07/opinion-why-nzs-current-account-deficit-could-fall-to-55-of-gdp-in-12-months/#comment-20152
Les Rudd
Invited Member
NZMEA
April 8th, 2009 at 4:28 pm
More suggstions made here:
Dr Nana on the Money: Productive Economy Council
http://business.scoop.co.nz/2009/04/08/dr-nana-on-the-money-productive-economy-council/
Les Rudd
Invited Member
NZMEA
April 8th, 2009 at 7:52 pm
Sounds like a bit of scare mongering from the Reserve Bank. As a credit officer with one of the “Aussie” banks I can say it’s entirely wrong to suggest that the credit decisions effecting NZ business are being made from Australia. While there may be some element of truth to this at a corporate level, as far as your every day medium to large NZ company is concerned, which make up the bulk of the country’s businesses, those decisions are being made right here. As far as access to credit is concerned, we’re happy to lend to businesses in sound financial positions with sound business proposals.
April 8th, 2009 at 8:23 pm
How can we attract capital when Bollard keeps cutting interest rates. This is a bit of a no brainer. If you wish to improve capital flows try rising deposit rates.
http://www.stuff.co.nz/business/opinion/stirring-the-pot/2317307/Fletcher-lesson-Its-time-to-print-money
April 8th, 2009 at 9:31 pm
What do you think the border-less central banking empire would do if they wanted to monopolise your necessities of life, do you think they might first offer you more of their created credit than you can repay, then inflame the crisis by switching off the credit tap in order that societies end up selling their assets to their majority owned multinational corporation subsidiaries for cents on the dollar to what was paid for them.
http://www.gwb.com.au/gwb/news/banking/wpac97.html
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“We are grateful to The Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the work is now much more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries.” David Rockefeller, founder of the Trilateral Commission, in an address to a meeting of The Trilateral Commission, in June, 1991.
“The depression was the calculated shearing of the public by the World Money powers, triggered by the planned sudden shortage of supply of call money in the New York money market….The One World Government leaders and their ever close bankers have now acquired full control of the money and credit machinery of the U.S. via the creation of the privately owned Federal Reserve Bank.” Curtis Dall, FDRs son-in-law as quoted in his book, My Exploited Father-in-Law
http://www.svpvril.com/nwo.html
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Banking on Treasury
Douglas and Richardson needed considerable help in drafting their programs, getting them through the cabinet-where most of their colleagues cared very deeply about being re- elected-and driving the reforms down through the bureaucracy. What is startling is where that help came from.
It came in the shape of the Treasury, New Zealand’s most elite and powerful department. Treasury provided not only the intellectual foundation for many of the reforms but also the technical expertise needed to translate theory into reality. “The Treasury became the life- support system for Douglas, Richardson, and other politicians trying to reform the system,” says one longtime government watcher.
Treasury also brought an intellectually rigorous approach to New Zealand’s reforms that had no parallel in either the Reagan or Thatcher administrations. “It became a ‘think tank’ for the neo-liberal [in the classical sense of the word] movement,” writes political scientist Enid Wistrich, “using its authority as the top government department to influence the political leaders and secure the implementation of its blueprint.” It was as if the Office of Management and Budget were run by University of Chicago economists.
http://www.reason.com/news/show/30260.html