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BNZ economists describe Govt plans to influence bank lending as a "surprise" but say judgement will have to wait until further details are revealed

BNZ economists describe Govt plans to influence bank lending as a "surprise" but say judgement will have to wait until further details are revealed

BNZ economists say the government’s plans to have more say in financial regulation - as indicated last week - will be important for the markets to monitor.

In announcing plans for the long anticipated deposit insurance scheme and the Deposit Takers Bill last week Finance Minister Grant Robertson said the reforms would include a new process for setting lending restrictions, such as loan-to-valuation (LVR) ratio restrictions. 

“This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict. The Reserve Bank will then have full discretion to decide which instrument is best suited to use and how the restrictions are applied,” Robertson said.

In the weekly BNZ Markets Outlook publication BNZ senior economist Craig Ebert describes the Government's announced plans to influence bank lending as a "surprise".

"The government’s plans to have more say in financial regulation will be important for the markets to monitor," Ebert says.

"However, judgement will have to wait until the details are, firstly, revealed and then confirmed in legislation."

He estimates this could take "at least a couple of years", going by currently proposed timelines.

"To the extent this agenda is another directed at the recently-heated housing market, we would note the housing market could look and feel quite different by the time the new Deposit Takers Bill is enacted – namely 2023 by the look of it."

Regarding the Bill’s proposed introduction of a deposit insurance scheme for New Zealand, the $100,000 threshold is "much bigger" than the $50,000 previously indicated, he notes.

"What’s more, it would apply to every amount an individual has with each deposit-taking institution, rather than $100,000 as a maximum per individual."

Ebert says by its name and proposed thresholds, the deposit insurance scheme "sounds very reassuring".

"However, it also increases the moral hazard of people dispersing funds across a wide range of deposit-taking institutions – some with naturally higher risk characteristics – knowing the taxpayer will bail them out if/when things turn sour.

"Of course, any insurance scheme involves direct costs in the form of premiums, which will presumably be paid on an ongoing basis by all deposit-taking institutions."

While it will take time to judge the impact of the Deposit Takers Bill/Act, Ebert says it’s an added reason to tune into next week’s six-monthly Reserve Bank Financial Stability Report (FSR), (on Wednesday, May 5) for "any light the Bank might shed on it".

"The FSR was already shaping up to be interesting enough, given the recent housing policy announcements by the government, and the lingering issue of whether the RBNZ might have anything more to say (and do?) with respect to restrictions put upon housing 'investors'," Ebert says.

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8 Comments

From Cola to banks, this government seem to enjoy controlling every aspect of its citizenry.

Smells like the the red army, looks like the red army.

Requiring appropriate return on capital while ensuring the deposit taker (not the tax payer) carries the risk is not Marxism. Its capitalism.

Specuvestment has had it so good for so long they have this mixed up.

Labour continue to dictate what we cant do, and offer nothing in assisting HOW to do.
Roberston is the driving force behind the the labour party and he needs to be feared.
P.S Also another member of this party who have never run a business.

As much as I loathe the current lot, I actually think they're right to seriously look at the Oz bank's absurd profiteering in NZ.

Up until now the Reserve Bank have made a hash of the monetary system.
They need to be reigned in.
Higher asset prices doesn't equate to higher production.

RBNZ action in NZ is mostly targeted to support housing market and it should be as only economy in NZ = Housing Economy.

RBNZ Said.......Take The Housing Market To The MOON !!

A possible situation / relation between government and rbnz :

Mr Robertson must have wanted Mr Orr to announce DTI and measures on interest only loan at the the time of their announcement or near around but as was no understanding between them must have have given Mr Orr a month time to decide and act ( hoping better sense will prevail) but it seems that may be Mr Orr (Ego is too Big) is still in no mood to control speculative demand as against his interest, hence the warning from government highlighting that their helpness should not be taken for granted by RBNZ governor.

Predection :

Come what may, Mr Orr will not outrightly rule out but will find reason to support his excuse of Wait and Watch (one never knows as his inflated ego must have been hurt badly by Robertson, possibilitt of outrightly reject is also possible though doubtful)

May be government action is based on.......

No room for inflated egos where the country's interests are at stake. Once the government measures kick in then we may have punctured tyres to replace those egos

What an emotional load of rubbish. Tune into one of Mr Orr's speeches and REALLY listen to what he is saying. Who's fault is the problem the Golvt and the People. Him pushing regulations won't fix things. only the Govt and peoples high expectations will