The Reserve Bank promised a new era of openness. But is it being open with its own Governor?

By Martien Lubberink*

Press, politicians and pundits were broadly pleased when Anna Breman was chosen as the new Governor of the Reserve Bank of New Zealand. I was among them. I welcomed her appointment in a blog post. I also spoke with a Monetary Policy Committee member and a board member around that time, and they were elated too: “A competent outsider, strong academic background, experience with regulators and banks.” What could possibly go wrong?

And yet, I was quietly concerned.

Stranger in a strange land

Breman moved from a coveted role in the European bank regulatory system to New Zealand, at roughly the same age I was when I made a similar journey to this country. I, too, had held a position in European bank regulation. We both moved with young children. (And we fell in love with New Zealand, warts and all.)

But with the benefit of hindsight, I can say that New Zealand is a more complex country than it first appears; as, of course, is any country.

Kiwis are kind and polite, which reminds me of a joke about the difference between the Dutch and the British: the Dutch are too honest to be polite, and the British are too polite to be honest. Anyone arriving on New Zealand’s shores will encounter the mates culture, the way conflicts of interest are navigated, and the aversion to conflict. All of this creates a very agreeable surface impression. But beneath that surface, Aotearoa New Zealand is complex and, at times, conflicted.

I suspect I was fortunate in that I moved back to academia, where staff are diverse and internationally mobile, and students come from every corner of the planet. Moving from one university to another is close to seamless. The culture is largely portable. Even so, as a straight-talking Dutch person, I am still, after all these years, aware that I am not quite one of yours - yet. And my university reminds me of that every now and then, albeit subtly. I realise and accept that it is part of the cost of doing business in another country.

Welcome to the Machine

Now imagine Breman arriving at the Reserve Bank of New Zealand. Like most central banks, the RBNZ is not a particularly transparent institution. It has factions and fiefdoms, as any large organisation does. What makes life at large organisations particularly difficult is the intensity of internal politics. Clever operators can accumulate significant influence well beyond their formal mandate. And unlike a university, where academic staff move between institutions with relative ease, mid-career mobility out of a central bank is limited, especially for those who are moderately competent and comfortable where they are.

Compounding this, the RBNZ is still healing from the bruising Orr years, a period in which a certain looseness with the truth appears to have been normalised at the top. And institutional cultures have a way of seeping downward.

There is now, to the organisation’s credit, a stated zeal for transparency and reform. But that very commitment to change is likely to unsettle some of the movers and shakers within the institution, those who have done well under the old arrangements and have every reason to resist scrutiny.

My concern, in short, was this: that some of Breman's subordinates would have a vested interest in the status quo, and would pursue that interest by controlling, whether deliberately or through institutional inertia, what information reached her desk, and how. Breman would be a perfect target: not yet versed in the informal circles of the bank, with little knowledge of the troubling histories of its more influential players, and as a relative newcomer to New Zealand, fairly open to accepting the dominant culture and standard operating procedures, even where they make no sense. 'Sorry, but that is not how we do things here.'

I alluded to this in a previous post, where I noted that Breman had been let down by her own organisation and found herself alone in the dark, poorly briefed, co-signing a letter in support of Jerome Powell.

Money's Too Tight to Mention

The recent saga over the Reserve Bank’s cash-access consultation suggests those concerns were not unfounded.

When Breman met with bank executives for lunch late February, she made only a passing mention of an impending cash consultation. The next day, the industry was confronted with a sweeping proposal: requiring banks to establish between 1,300 and 3,000 new free-to-use cash service sites across the country. The sector was, in Kiwibank CEO Steve Jurkovich’s words, “blindsided” and “caught on the hop.”

What is striking is not that a bold proposal was made. It is that Breman herself appears to have been kept at arm’s length from the detail of her own organisation’s work. Multiple banking sources, reported by BusinessDesk, pondered how much Breman actually knew about the substance of the consultation on the day of that lunch, and whether she was herself surprised by what her staff published the following morning.

Is There Something I Should Know?

There is one detail worth noting. When the proposal was released to the media, it was not the Governor who fronted the press. It was Ian Woolford, the RBNZ's director of money and cash. That is not unusual in itself, technical consultations are often explained by the relevant staff lead. But in the context of a proposal this significant, and given what we now know about how little notice even the Governor appears to have had, it raises a question: was Breman in a position to front this herself? Or was she, too, still catching up?

The RBNZ initially pushed back against the characterisation that the sector had been blindsided. It then walked that position back. It acknowledged it had provided “some but not sufficient notice” to key stakeholders, and admitted the consultation had never even made it onto the Council of Financial Regulators’ Regulatory Initiatives Calendar, because, apparently, it was “still under consideration” at the time the December calendar was published.

Oops!... They Did It Again

Finance Minister Nicola Willis agreed that the notice was insufficient. She praised Breman for acknowledging it, framing the admission as evidence of a “learning organisation.” That is a generous reading.

A less charitable one is that the Governor of the Reserve Bank was placed in the position of apologising publicly for a process failure she may not have caused and may not even have been fully aware of.

This is the Kafkaesque quality of the situation. Breman was appointed, at least in part, to bring transparency and accountability to an institution that badly needed both. And yet, as with the Powell letter, she finds herself once again defending or correcting the actions of an organisation that does not appear to be keeping her fully informed.

You Can Call Me… Anytime

After January's co-signing kerfuffle, Willis made it explicitly clear that Breman could call her any time. It would be truly surprising if she didn't. One can only imagine how awkward that conversation must have been, once Breman realised that her own organisation's consultation contained rather more surprises than Breman had let on at lunch.

Whether this is the product of deliberate obfuscation, bureaucratic dysfunction, or simply the accumulated habits of an institution unaccustomed to genuine openness, is difficult to say from the outside. But the pattern is becoming harder to ignore.

I have a right to rely on them

It brings to mind Jamie Dimon’s terse verdict after the London Whale scandal, when it emerged that multiple red flags had not been escalated to the CEO. Facing Congress in 2012, Dimon said of the risk managers and executives who had failed to alert him: “I have a right to rely on them.” It is a simple but devastating line. A leader cannot be everywhere. They depend on their organisation to surface what matters, when it matters.

Anna Breman has every right to rely on hers. The question is whether, so far, she can, and what the answer means for the financial stability of this country.

*Martien Lubberink is an Associate Professor in the School of Accounting and Commercial Law at Victoria University. He has worked the the central bank of the Netherlands where he contributed to the development of new regulatory capital standards and regulatory capital disclosure standards for banks worldwide and for banks in Europe (Basel III and CRD IV respectively).
This article first ran here and is used with permission.