Those watching the parliamentary banking inquiry hearings have had front row seats to a curious phenomenon; MPs from the government's right-leaning parties effectively questioning the right of private businesses to make their own decisions.
The phenomenon I'm referring to is MPs getting grumpy about banks lending how and to whom they choose, whilst taking into account laws made by politicians and other policymakers.
At the centre of this are questions about "greenwashing," "playing the moral police," and allegations of banks restricting credit availability to farmers and fossil fuel-related industries such as petrol stations, the oil and gas sector and mining. Some MPs have questioned whether banks are even taking on the role of politicians and policymakers when they're merely "unelected banks."
Fuelling an aggressive approach from the National and ACT parties' MPs is lobby group Federated Farmers, which has been on the attack over banks' sustainability, environment and climate-related stances for some time.
Interestingly it has taken Chloe Swarbrick, co-leader of the left-leaning Green Party, to point out the National and Act MPs are essentially arguing against free market capitalism by trying to tell banks how, and to whom they should lend.
No one's simply entitled to a loan from a private business. The business has a say in how and to whom it lends. In terms of banks' legal right to determine who they lend to, and when they can terminate a banking relationship, the MPs might want to keep in mind three court cases over recent years.
The first one is a BNZ v Gloriavale Court of Appeal judgment out last year. This one overturned a High Court interim injunction, which had prevented BNZ from debanking Gloriavale entities.
The second one was a 2023 High Court judgment backing Westpac New Zealand's right to withdraw banking services from a company associated with Russian oligarch Alexander Abramov.
And the third one was a 2016 High Court judgment ruling it was lawful for Kiwibank to close the account of remittance company E-Trans International Finance.
Perhaps to circumvent this, or get one up on ACT, NZ First's Shane Jones announced in a speech on Friday he plans to introduce a Members Bill forcing banks to stop "holding our economic development to ransom to suit the privileged cabal employed on environmental, social and inclusion matters." Quite how this could work, and who will support his bill, remains to be seen.
The tension in the middle of all this is banks are at the centre of the economy. It can be tricky doing things without one. Even the NZ arm of cryptocurrency exchange Binance wants a local banking partner. And of course, if you want to borrow money in NZ, banks are the main event.
Banks are also in the frontline of implementing government policies such as getting to net zero greenhouse gas emissions by 2050, even if the political will to do so is half-hearted, and trying to prevent money laundering and the financing of terrorism. In lending to farmers, banks may want to clarify that resource consent, environmental and animal welfare standards are being met. If government MPs don't like such policies, they can seek to change them.
Ultimately banks are in the business of risk management. They lend money they want to get paid back, with interest of course. If they decide a certain industry is facing a sea-change in coming years, making it a riskier borrower, they may reduce their lending exposure. They may not always get the decision or its timing right. But this is what's happening as the world moves to decarbonise.
The push back against banks witnessed at the select committee hearings may gather pace in the short-term as politicians, lobbyists and others, are emboldened by the return of a certain person to the White House. However, even the US President's powers face limits with 24 US state governors remaining committed to the Paris Agreement despite Donald Trump withdrawing his country.
A rare constant in life is change. It comes at you whether you like it or not. If you don't adapt you get left behind. And that goes for both banks and their customers.
*After I wrote this article, ACT's David Seymour said the Government should consider withdrawing from the Paris Agreement.
*This article was first published in our email for paying subscribers first thing Tuesday morning. See here for more details and how to subscribe.
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