Commerce Minister Scott Simpson will ask banks to disclose profits earned from basic transaction, on-call and savings accounts, and request an investigation into the pricing of those products.
This was a recommendation of Parliament’s Finance and Expenditure Committee (FEC) following the recent banking inquiry. It wanted to know how much profit stemmed from everyday depositors effectively subsidising lending margins.
Banks broadly declined to share that information with the inquiry, saying it was commercially sensitive or otherwise not available for publication.
The FEC’s final report recommended the government should ask the banks to disclose their profitability on transaction accounts, to improve transparency and competition.
It also called for the Financial Markets Authority (FMA) to investigate transaction account pricing by using fair conduct principles, a framework used by the regulator to judge whether customers are being treated fairly.
Finance Minister Nicola Willis and Commerce Minister Scott Simpson said on Thursday the government would take action on this recommendation, as well as others in the report.
The official government response said Simpson will write to the FMA and ask it to consider the recommendation under the Conduct of Financial Institutions regime.
As the FMA operates independently, it cannot be instructed to launch an investigation.
The Minister will also write to banks to “encourage them to consider” disclosing profitability on transaction, on-call, and savings accounts. Again, the government lacks the legal power to compel the banks to follow this instruction.
Willis told reporters the banks would have to explain themselves to the public if they refused.
"We don't currently have a law that would allow us to force them, but I think the banks often make quite a point that they consider themselves to be good citizens of the country, well here's an opportunity to prove it," she said.
Simpson will also encourage banks to standardise financial information and use new technologies to help customers compare products and loan options across banks.
The official response said the government was broadly supportive of transparency in banking and any initiatives that supported it.
“For example, the FMA encourages banks to provide greater price transparency by publishing data on how and when they pass through changes to the Official Cash Rate,” it said.
The FEC inquiry endorsed the Commerce Commission’s findings that there was “no observable tendency towards strong competition” in the banking sector, which was more profitable than in comparable markets overseas.
Some other key recommendations have already been implemented.
In March, the Reserve Bank preempted a key recommendation of the inquiry and announced it would review regulatory capital settings for banks. It has also established a prudential regulation committee.
In July, the Government approved Kiwibank’s plan to raise up to $500 million from private sector investors to fulfill another suggestion.
2 Comments
"It wanted to know how much profit stemmed from everyday depositors effectively subsidising lending margins." How does that work? If you invest $1000 in a savings account and the bank loans it to someone and makes a profit, did they make the profit from the savings account or the loan?
"It's the behaviour of the market participants, not the legislation they operate within"
This really feels like grasping at straws - I've not heard any suggestion transaction accounts are unreasonably profitable, so is the suggestion they should be something the banks do for less than cost? (aka charge more elsewhere to compensate)
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