RBNZ Deputy Governor Geoff Bascand says the prudential regulator can't direct banks to lend funds from its Funding for Lending Programme to a particular sector

RBNZ Deputy Governor Geoff Bascand says the prudential regulator can't direct banks to lend funds from its Funding for Lending Programme to a particular sector

Deputy Governor and General Manager of Financial Stability Geoff Bascand says the Reserve Bank has no mandate to direct banks to lend to any particular sector.

Bascand made the comments when speaking to interest.co.nz's Jenée Tibshraeny about the central bank's Funding for Lending Programme (FLP).

Set to be launched in December, the FLP will offer banks around $28 billion of funding priced at the 0.25% Official Cash Rate (OCR). Ahead of the Reserve Bank's FLP announcement, there was speculation it may seek to have lending supported by the FLP targeted at the business sector and away from the hot housing market.

Asked whether FLP funding could go into the property market because businesses don't want to borrow at the moment, Bascand said where banks lend the money is up to them.

"Where they put the credit will be banks' allocation decisions for sure. But they have a number of things to take [into] account. If they do household lending they've still got to be confident that that's going to be repaid and that that's good quality lending. And we're obviously sending them a message about that; - don't do high risk loans," Bascand said.

 "Also we don't have any mandate to direct lending to any particular sector. If you want to direct lending, that's really a government policy decision or initiative. It's not a central bank one. We have overall support for the economy."

"The way the scheme works is we think it will lower overall funding costs for banks and other financial institutions. So instead of having to compete for term deposits or for wholesale market funding overseas as much as they would otherwise, they can now be more confident they've got low cost funding from the central bank. So their cost of funds comes down. And that means they'll lower in due course all their interest rates and we really want to see that, business and household rates will come down," Bascand said.

Interest.co.nz also asked Bascand why building societies and credit unions are excluded from the FLP, as reported on Thursday.

"We fund institutions who can borrow from us and we have rules, conditions, that we need that lending to be backed by collateral we receive and they've got to be able to provide that for us. And it's effectively a set of institutions that have got that collateral that qualify for that."

"But at the same time we think all financial institutions will benefit because deposit rates will come down across the market, for everybody. So that's the main way this scheme will work. It's not actually the direct borrowing. We actually think it'll be quite slow to take up the direct borrowing, it's more that they don't have to compete so much for other funds. So the indirect effect is rates will come down for everybody and building societies, credit unions, finance companies will benefit from that as well," Bascand said.

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41 Comments

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Bascand should refrain from talking to the general public like they're idiots. NZ banks are essentially mortgage houses with approx 70% of their revenues and profits coming the housing sector. If the banks are not focused on this sector, there's little other opportunity for them. So saying about where the banks lend all the 'cheap money' (on top of all the money they're entitled to create) is 'up to them' is simply trying to pass the buck yet again and paint some false reality of what banking is about in NZ.

Just let the property market in control by the invisible hand as we are a free, open, capitalist market and society anyway.

Says the guy who worships an authoritarian regime...

Nice Jibe, but no laughing matter.....the spies are everywhere......even here online....be smart, do not say a word and acknowledge that we are at the mercy of all who survey, and infect our sacred Land. This is Friday the 13th an awe-spicious occaision, do not meddle in the affairs of man...by the way, what happened to the Man, am I being suspicious....did he upset the Apple Cart, or was he part of the threat, Houses for those invaders of our privacy......remember keep Mum, do not say a word...someone is always ticking our boxes, it is a counterfeiting monopoly, a Climate of Change, a trumped up Charge......gets you put in the stocks, I know.....this is Donald, so "Duck". Friday the 13th..remember.....Court Jester.

so unnecessarily paranoid.
;D

What an unmitigated flow of baseless unintelligent dribble

Do you not understand..irony.?

Do you not understand..irony.? .Just winding up the inteligencia.

"free, open, capitalist market"

OK then, let's take away all accommdation supplements, all mortgage deferrals, and most importantly the Reserve Bank - let interest rates find an equilibrium price, take away all unnecessary liquidity.
Let's open up all fringe land for development. Take away height and density restrictions in inner city suburbs (Parnell, Remuera, Epsom, Mt Eden, Mt Vic, Aro Valley).

But, let's only allow other countries with similarly free markets to play in our free market.
Scanning the room - no, that's no one else.

Sure, let's have a real free market and see how you like it.

We have overall support for the economy

What a load of BS. Was removing the LVRs supposed to support the overall economy or a particular sector?

This is an outrage. Maybe since they do not have ability to direct funding to specific sectors, and being well aware the damage over-lending is doing to the economy, they should stop pretending and let us know *for real* why they think this is they way to go since it seems to not to make sense to anyone, not even banks.

I've no knowledge of funding structures. How will the lower cost funds be allocated? How do they decide who gets the lower cost funding in the housing market?

There's a lot of 'we think' rather than 'we know'. Even with this FLP, they don't know what the outcome is going to be or how the banks are going to utilize it. Surely you'd set it up with more stringent rules so you've got more guarantees of an outcome. They don't even know if rates will drop, they think & hope the banks will do it but don't know for sure.

Not sure I entirely agree with you. Central banks work with relatively complex scenario modelling to support their decision making. They don't just 'wing it.' Their technical expertise (or access to it) and academic credentials should not be in question. What the greater threat is about is that these people are indoctrinated and groomed to think like they do. They gravitate towards consensus. And just like anyone, their decision making is influenced by fear and getting it wrong. It's always easy to choose the default solution rather than risk doing something new or different. Sure, it is not the place for mavericks or risk takers, but we shouldn't be surprised about their behavior. Remember, even the mighty Alan Greenspan doubled down on his theory and monetary policy. It didn't end up well and the world is going to be paying for it until the monetary system evolves into something new.

I'm sure there is a lot of work that goes behind the scenes at RBNZ. I'm going by the language Orr and co are using, vague messaging and a lack of confidence I've seen over the last week. Its like they don't want to fully commit and leave themselves an out.

Governor Orr meets Peppa Pig:

"HELLO Peppa, I'm Governor Orr, I drive the fire truck!"

"OH Look Peppa !!, a housing is on fire, shame it's NOT my mandate to pick up the fire-hose in the back."

"But Governor Orr, it's just in the back!?"

"Shut up Peppa!! Less housing means higher prices. NOT MY MANDATE"

Peppa Pig :)

Later that day there was a distinct smell of burnt bacon. RIP Peppa.

maybe don't give them $28b right now then.

just an idea.

You absolutely do though Geoff, it's called fixing the risk-weighted assets fiasco that's caused banks to lend overwhelmingly to property in the first place.

You absolutely do though Geoff, it's called fixing the risk-weighted assets fiasco that's caused banks to lend overwhelmingly to property in the first place.
Exactly.
Recent evidence: Westpac New Zealand extended 62% of loans to housing to record a $3.727 billion increase from last year, while lending to all other categories combined fell. Link - page 22 (27 of 145)

Yip. It feels like a self-fulfilling prophecy to me, as well.

Because small and start up businesses basically can't access bank loans, the banks don't build up much capability at being able to sort the wheat from the chaff. And because businesses don't bother to present sound business plans to banks in order to seek finance, there's less rigor in startups and small businesses in how to run their business. If a potential startup got knocked back by a bank saying "your business plan isn't sound" then we might see more people do their homework before launching ventures that are ultimately destined to fail.

I don't get what the RBNZ is so afraid of. Sure, houses are assets that are likely to still exist and retain their value more than a speculative business is, but at this point there is clear and evident risk in continuing to push house prices up, to the point that they won't retain their value. If banks are taking increased amount of risk either way, wouldn't it be better for everyone if some of that risk was put into actual productive businesses, not houses?

Being associated with start ups myself in NZ and offshore, most rely on private equity, not banks.

that's how funding should work in a business life cycle tho.

I used to work in a commercial bank - start-up customers used to get irate with the idea that they should seek equity funding.

Sure. Households should stump up over 50 % of the funding for residential property investments. Then they would no longer be speculators.

Folk not owners of property need be credited ex Treasury with cash if $100,000 to $150,000 per annum.

OMFG. So banks get money at 0.25% and then lend it out at say 2.5% right?

So that's a 2.25% margin on 28 billion, which is $560 million. Not bad aye? I'm in the wrong business.

The RBNZ concessions may be richer than that to engineer an across the board reduction in bank deposit rates. Furthermore, a potential move to a negative OCR imposes costs on banks already significant settlement cash/monetary base assets, caused by ongoing RBNZ LSAP (QE) monetary policy actions, has to be addressed. Banks could possibly increase loan rates and reduce lending if retained earnings are not contributing to an RBNZ stipulated capital base consistent with credit creation growth.

Wait until you learn about fractional reserve banking. Guess how many times the bank is able to lend against that money they got @ 0.25%.

This people feel that no one understand what they say and what they mean...

RBNZ stands exposed.

RBNZ bosses talking National party leaders language that housing crisis is a Good crisis to have :

https://www.newshub.co.nz/home/politics/2020/11/reserve-bank-governor-ad...

So RBNZ bosses are admitting that they want house price to go up and have been working on it for ponzi to continue to avoid depression as they have no other options and are screwed.

This is how Mr Orr must be creating fear in politicans to not act against the ponzi....20% rise in few months is this economy recovery the new reset that everyone was talking about.

Mr Orr and his type of mindset should go as are not suited to new reset.

No one gets fired for increasing house prices mate.

I wouldn't be surprised if that's no longer the case. Do you think if at the end of the next term house prices are up another 30% that Labour will get reelected?

It will be the perfect excuse for bringing in a raft of new property and other taxes. Voters will be "demanding" taxes. You think house prices are rocketing up by accident, rather than by design?

RBNZ bosses talking National party leaders language that housing crisis is a Good crisis to have :

Orr seems all over the shop compared to the man with confidence, swagger, and turn of the tongue when he first became the top dog.

But his conclusion is clear: the trade-off is between either a property bubble or a depression. Take your pick.

Depression is already a huge issue in New Zealand. Suicide rates aren't gonna improve anytime soon if this is the mindset our top dogs are adopting.
I know you mean the other kind of depression, but at this point I'm not sure if that would actually cause a greater damage.

Funny that we don’t need to be at this crossroads yet it’s by not facing the problem that each time we avoid it, it simply gets worse to the point where we keep having to make it worse in order to avoid it for another few years.

It’s weak leadership - I’m more of the view that you eventually need to start dealing with issues before they spiral out of control - a housing bubble clearly isn’t one you worry about.

Funny that we’re on the brink of a depression - even Orr sounds like he’s admitting that- yet house prices are heading for the moon. It’s like doing shots at 3am when you’re already completely fucked. Next is vomiting in the Uber and paying the expense cleanup bill.

"The fact we're talking here and complaining about house prices or these types of activities, that's a problem but IT'S A FIRST-CLASS PROBLEM." (emphasis by me).
Can this c**t just f**k off?

Oh by the way, kids in Africa are starving, so all our problems here an NZ are insignificant.

It is funny how when you get into political power you come to realise that giving more wealth to those who are already well off is the best thing 'for the economy'.

Another example of the RBNZ hiding behind nothing. Do they think that NZ investors are idiots? It would be funny if it was not so dangerous to the stability of the NZ economy and financial system. It is high time to sack these clowns.

Reserve bank has no mandate to direct banks to lend to any particular sector.
HA HA HA - BOLLOCKS
By setting the capital adequacy ratios the Reserve bank directs the trading bank's capital allocation as they look to maximise their profits.
For the past several years the Reserve bank has pushed up and/or indicated an intention to push up capital adequacy ratios for rural lending and as a direct consequence the banks slowed down in that area.
What a stupid statement for Reserve Bank to make

Why can't the government give them the mandate to restrict lending to certain sectors?