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Jenée Tibshraeny on the billion dollars a bank has just borrowed from the RBNZ, the Chris Liddell saga, banks writing riskier mortgages and cafés closing during peak season

Jenée Tibshraeny on the billion dollars a bank has just borrowed from the RBNZ, the Chris Liddell saga, banks writing riskier mortgages and cafés closing during peak season

Today’s Top 5 is a collection of titbits collated by’s Jenée Tibshraeny.

See all previous Top 5s here.

1. Bank makes flippin’ big FLP drawn down

A substantial second drawdown from the Reserve Bank’s (RBNZ) Funding for Lending Programme (FLP) has now been made. A New Zealand-registered bank on December 21 borrowed $1 billion from the RBNZ.

This followed the first drawdown via the programme of $40 million on December 11.

With the RBNZ committing to lending up to around $28 billion to retail banks via the programme over two years from December 2020, this leaves just under $27 billion for them to tap into.

The reason the RBNZ is effectively printing money and on-lending it to banks at a low cost (the Official Cash Rate, which is currently 0.25%) is that it hopes this will help banks reduce their lending rates. Lower interest rates are supposed to be stimulatory, helping boost inflation and employment in line with the RBNZ’s monetary policy mandate.

The RBNZ doesn’t name the banks that borrow funds via the scheme. But because the amount banks can initially draw down is capped at 4% of the value of what the RBNZ calls their “eligible loans”, suspects only the Australian-owned banks - ANZ, ASB, BNZ and Westpac - would be large enough to be qualify for $1 billion.  

These banks wouldn’t say whether they drew down the $1 billion.

Banks will likely start drawing down more from the FLP as their other sources of funding reach maturity.

2. Reputation management fail?

An interesting sub-plot to the chaos ensuing in America is the politicking around kiwi millionaire and White House deputy chief, Chris Liddell.

Having largely stayed out of the eye of the New Zealand public during his time as one of US President Donald Trump’s right-hand people, Liddell chose to respond to a couple of media inquiries he received last week in the midst of riots at the US Capitol.

He also engaged a public relations (PR) agency to put him in touch with right-wing PR consultant, Matthew Hooton, who’d written a critical piece about him in the NZ Herald.

Hooton claimed he was contacted before the Capitol had even been fully cleared - noting it was odd Liddell appeared to be prioritising interviews at that time. 

The timing of Liddell, who’s in the running for OECD general-secretary, surfacing to do some reputation management is in many ways more interesting than the comments he made as such.  

Newsroom Pro managing editor, Jonathan Milne, who interviewed Liddell, wrote: “No doubt Liddell feels the sting of New Zealand’s refusal to offer him any government or public backing in his OECD bid, when 10 other countries are backing him.

“He may also be pained by the notion that much of his home country is disgusted with the actions of the administration he has served in for the past four years…

“It seems likely that his approach to Hooton – along with the time he’s given to New Zealand journalists who have approached him for answers – indicates he’s not ready to burn his bridges with New Zealand. It’s a long way from Matamata to Washington DC – but Liddell clearly hopes to one day find a path back again.”

One has to wonder whether Liddell - a risk management professional - has mismanaged his personal situation.

The judgement he exercised deciding to work for Trump aside, it might’ve been better for him to continue trying to remain under the radar while the inevitable happens under the administration he’s served.

His attempts to salvage himself from the wreck that’s seen more people than necessary lose their lives to Covid-19, and people from across the political spectrum flock to the streets in exasperation over being economically and socially excluded, look desperate and shamelessly self-serving.

Back home, National should be pleased Parliament is still in recess, as the spotlight would otherwise fall on it more heavily over its endorsement of Liddell for the top OECD job.

3. Changes in mortgage lending across NZ major banks compared

ANZ NZ made headlines in December when it got ahead of its regulator and announced it would require most residential property investors to have 40% deposits.

It said it would impose this loan-to-value ratio (LVR) restriction on itself immediately, before the RBNZ proposes requiring most investors to have 30% deposits (and most owner-occupiers 20% deposits) from March 2021.

But, by just how much had the country’s biggest bank filled its boots before positioning itself as a responsible corporate citizen?

ANZ’s disclosure statement for the year to September 30, 2020 shows the size of its mortgage book increased by 6.8% from 2019 to $96 billion.

BNZ’s loan book increased the least (5.1%), and Kiwibank’s the most (7.4%) - noting the Kiwibank data is for the year to June.

All the major banks dished out higher portions of mortgages to borrowers with 10-20% deposits (LVRs of 80-90%). However only ANZ and Kiwibank sold higher portions of mortgages to borrowers with deposits of less than 10%.

  Portion of mortgages with high LVRs Annual increase in total mortgage lending
  80-90% 90%+  
For year to Sep 2020 2019 2020 2019 2020
ANZ 4.4% 3.8% 1.8% 1.6% 6.8%
BNZ 4.8% 4.5% 3.4% 4.0% 5.1%
Westpac 5.1% 4.9% 2.3% 3.0% 7.2%
For year to Jun 2020 2019 2020 2019 2020
ASB 5.7% 5.1% 2.2% 2.2% 6.5%
Kiwibank 7.9% 7.5% 1.5% 1.3% 7.4%

While it's interesting to compare these figures, it's worth noting the amount of risk ANZ, ASB, BNZ and Westpac are taking on is also to some extent determined by their Australian regulator.

4. The 2020 rush to become a real estate agent

The number of people applying to become licensed real estate salespeople, branch managers and agents between July and September 2020 surged by 42% compared to the same period in 2019, according to the Real Estate Authority.

In its briefing to the incoming government minister, dated November 23, the Authority said the number of new applicants during this three-month period reached 601.

More people were of course losing their jobs and seeking new opportunities during this time, all the while house prices began their steady incline.

But the Authority said it also had a number of suspended licensees, so anticipated the overall licence numbers to reduce to 14,500.

5. An anecdote to end…

It was surprising to see a few cafés at beautiful coastal locations closed around the summer holiday period.

Of particular note were the couple of cafés near the Fitzroy surf club in New Plymouth - shut when we were there a few days before Christmas, and one or two cafes at Mt Maunganui’s main beach - closed during a visit a few days after Christmas.

One would’ve thought these were prime times for these businesses to keep the doors open, particularly given the year they’ve had with Covid-19.

An excellent café (The Federal Store) - a couple of streets back from the beach in New Plymouth - was pumping when we made our way there instead.

A few unsubstantiated theories:

  • Business had been down and without international tourists it wasn’t worth opening, perhaps particularly in the cases of Mt Maunganui cafés catering to cruise ship visitors, not locals.
  • Business had been good enough during the year, the wage subsidy was helpful and the owners just wanted a holiday;
  • It was a struggle to find suitable seasonal staff, particularly with the lack of immigrants.

Interested in your thoughts and observations.

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Chris Liddell is a fascinating case. As a risk management specialist, he will be pedalling his ability to influence and guide policy from that perspective. So choosing to be a part of the Trump administration, one must wonder just how good his perception of risk is. We are told he is the chief of Staff, which makes him the gate keeper to the President, and in many ways this means he gets to influence what information and advice the President receives. So the question arises when one looks at the Trump administration's actions ; was he effective?

It surely doesn't look like it.

Deputy* chief of staff.

What's a billion dollars between friends?

Orr still got plenty of billions where that came from...brrr $

Aidrian Orr knows what he’s doing..... He hasn’t put a foot wrong.

NZ is very fortunate to have him. Plenty of other places would snap him up - offering a far higher purse.



Removing LVRs seems pretty widely accepted as putting a foot wrong.

Even the RBNZ seem to agree given that they're reversing it.

Path of least regret.

Non home owners and renters a bit of collateral.

Not condoning it but what else could they have done?

Starting to see negative employment stats coming through despite internal holiday high season.

How much worse could it have been?

Path of least regret.

Non home owners and renters a bit of collateral.

Not condoning it but what else could they have done?

Starting to see negative employment stats coming through despite internal holiday high season.

How much worse could it have been?

#1 - given WPAC's latest 2.29% mortgage offering (T&C's would make Interesting reading), I'd bet on their being the Phantom DrawDowner.

#5 - Regional hospo was always gonna be a victim of border closures. The recent items re the Glacier towns in south Westland are another example. The combined effects of fixed rents, indifferent/unpredictable patronage, possible low reputation locally, and the looming of minimum wage etc will all weigh on the chances of hospo survival. So opening could be, for some, a case of trying to pick up pennies in front of steamrollers.....

#5 contra anecdote. My grandaughter and her flatmate are both in hospo in Christchurch: a cafe and a bakery respectively. Both are run off their feet, business booming (bakery up at 130% t/o yoy) and plenty of hours on offer. Seems its location, location, location.....

I heard a rumour, but not too confident on its veracity, that it was ANZ, and that we might see fixed 1 year rates soon from them in the order of 2.1 - 2.2%.

A large bank (but not these ones) offered me 2.2% yesterday

Weather in New Plymouth has generally been terrible. Often windy and/or rainy and certainly not beach weather.
Beach cafe near Fitzroy which is just a kiosk set up with a few metal tables and chairs and bean bags (closer to East End Surf Club actually) sells almost warm beer for $11 and almost no food. Not too enticing for the average local so they probably lacked enough custom. Have heard it is hard to find staff in NP if you offer min wage esp when roster includes full day Sat and Sun.

Not so bad over the last week.
Kiosk is a rip-off. Looked in their once last year and decided to give it a miss. Not much changed.
Those Jaffas visiting down here used to be able to afford $11 for a warm beer but not now.
Sometime around Xmas New Year NW was advertising for staff with a bill board in their foyer.
I wondered how much success they had. I thought one could shake a tree and and a whole bunch would fall out.
Seems Labours Covid immigration policy is keeping all the cheap labour at bay.

NP is not exactly tourist central. So most business (and staff) are locals. So I suspect you are right, it would be weather/roster/expected demand, and/or they had a break pre-christmas.

To be honest the whole NP walkway is wasted. Should be cafes, picnic areas, BBQs all along it. Spoke to the council about it a few years ago. No tables as it encourages anti-social behavior. No BBQs as they are routinely destroyed. Bins are minimized as it is too hard too collect.

Surf clubs would be in prime position to offer bar/restaurant/cafe but sounds like consents aren't easy. Prime parking and walkway. Plus unobstructed views. Couldn't get a better spot really for a nice bevvy on a sunny afternoon.

Noncents... can confirm all staff I spoke to at East End cafe were almost certainly NZ born so probably locals. I think the Fitzroy Surf Club does operate a cafe from their club. They did last summer anyway. From what I hear the local council are constantly infighting about everything so consent may be difficult and/or expensive. At least the walkway now goes to Bell Block.

New Plymouth is horrible full stop unless you love golf. Absolutely outstanding view of the mount on a clear crystal cold day during a round but the wind was cutting me in half.

Lower interest rates are supposed to be stimulatory, helping boost inflation and employment in line with the RBNZ’s monetary policy mandate.

This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:

[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.

When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link

this is all based on the false loanable funds theory of money where there is only a fixed pool of money that everybody must compete for. As we know banks do not lend out peoples savings, they create money when they lend.

Banks ration their lending as I noted above.

. the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link

The majority of bank lending is on housing, hence the surge in house prices. It is interest rates that control the quantity of money and not the quantity of money that controls interest rates.

In the past significant quantities of bank credit were created at higher interest rates. I worked at a US G-SIB from 1982 - 1998 in London and we were lending industrial size quantities of eurodollar credit all the time to wholesale counterparties at significantly higher interest rates than now.

Interest rates are driven by demography. End of story

I am not sure that one leads the other, they go hand in hand and follow a general trend. I think it helps to think of interest as the maximum extractive value to the economy at any given time.

Lower interest rates are stimulatory.
Transmission mechanism is the yield spread. ( Interest rate vs investment yields).
Real estate mkt is a pretty obvious example.
It's also obvious that central banks lower interest rates when an economy is kinda weak.

So the government through its wholly owned central bank is creating and lending money to the private banking sector yet mainstream economists would have us believe that the government is merely a currency user dependent upon taxpayers and the private sector in lending 'it' money.

Nonetheless, the RBNZ records a liability to both banks (Bank settlement accounts) and the government (Crown settlement account) on it's balance sheet.

Furthermore, it makes a claim upon central government here.

Did we not establish that the RBNZ and the government are on the same side of the balance sheet? and that they are one and the same. It's like a household, you and your spouse may have different bank accounts but it is all the same household budget.

I beg to differ while they both report separate accounts.

So Adrian Orr was wrong when he said this? "the Reserve Bank balance sheet is just part of the Crown balance sheet. It's just that operationally we are set up independently to achieve a particular goal with the instruments that we are".
Perhaps you should send him an email and tell him that he is incorrect.

Can't claim to be an independent monetary authority if the governor claims otherwise.

That just means that it is independent in the sense than the politicians cannot interfere with its monetary operations and that was the politicians decision not to do so not the RBs. But one of it's main functions is to make payments on behalf of the treasury. The treasury instructs the RBNZ to pay such and such and the RB then credits their the bank account. Where did the money come from? It didn't come from anywhere, the RB created it. Government spending credits bank accounts and taxation debits bank accounts, money is created and destroyed each and every time.
The NZ Dollar currency is the unit of account of the NZ Government, it is not a commodity that the government needs to look for like gold, we now have a fiat currency.

Treasury, in its latest Half Year Economic and Fiscal Update, provided a two-page explainer on how the RBNZ's "money printing" or LSAP and FLP affect the Crown accounts. See pages 40 and 41.

Interestingly, Treasury concluded:

The current definitions for both the OBEGAL and net core Crown debt have been in place since the late 2000s. With the recent increasing influence from monetary policy decisions on the Government’s current key fiscal indicators and other decisions such as increasing the level of borrowings by Crown entities, the Treasury is looking to review the appropriateness of the Government’s current key fiscal indicators. The Treasury is working towards providing advice from this review to the Government to consider ahead of Budget 2021.

page not found error 404. I wouldn't believe much that comes out of treasury anyway, they are all radical neo-liberals in my opinion.

I've just hyperlinked it, so it should work. 

it's all a a lot of neo-liberal bunkum based on false neo- classical and orthodox economics. The hypocrisy shown in the introduction is a disgrace. The levels of poverty and homelesness in this country are a sad reflection on those in charge. How anyone with the authority to change things can face themselves in the mirror I do not know.
Our politicians believe all of this nonsense told them and then regurgitate it to us and it makes no difference who we vote for they are all the same. Jacinda is well meaning but she has no chance up against this lot.

Funny that New Zealand rejoiced when Liddell joined the Trump Team before. And now he is being chastised for not deserting. What double standard is that ? He probably joined the Administration not for Trump personally, but to get exposure to Government at the highest level and upskill. He is hanging in there now, also for the same reasons. To conclude his term with service to the Nation at the core, to facilitate a good transition. What is wrong with that ? I think he is Good.

"Funny that New Zealand rejoiced when Liddell joined the Trump Team before"
Who Can you link some proof to this comment otherwise fake.

So when you say "New Zealand" you mean the NBR? Hardly the same thing.

Saying he worked for Trump to learn about government is akin to working for the Chinese Communist Party to learn about public relations.

There are a couple of perspectives available here. First NZ always rejoices when a Kiwi makes their mark on the world stage in a strong positive way, and of course Liddell being chosen as DCS for Trump is just such an occasion. But then given the disaster that Trump is, there are concerns that Liddell remains connected to it, and possibly that he is not prescient enough to realise the disaster and thus is not that great. Alternatively it can be argued that he remains as a tempering voice of sanity to a dysfunctional president and administration. Take your pick.

Billions in fixed rate mortgages need to be refinanced to complete the inflation of the covid cushion. Many households will be getting drops of 2% or more. That will greatly improve cashflow and disposable income and/or encourage households to borrow more to trade up to more salubrious digs.

"Encourage households"- encouraging does not necessarily mean households will borrow. Why? In uncertain times, when economy is struggling and jobs and business opportunities are hanging on a thin string - nobody wants to borrow. On top of that is the trust in government. They may suddenly introduce a new bill, say interregional moving restriction, and your new business is simply washed down the drain. Or you loose a job. Why would you borrow if you are not sure you'd be able to pay it back. It has nothing to do with interest rate. You wouldn't borrow at 0% if you are not sure you would be able to pay it back, let alone make a profit.

My take on cafes, etc. In 'my areas' it differs as to reasons.

We live in Marlborough and drive to Chch a lot: lunch on the way down always used to be Twin Rivers, the main cafe in Cheviot. It's still closed and looks to be so for good. Also the cafe, Two Paddocks, across the road has only just recently reopened. Those two are pretty easy to figure out: they were starved of through traffic for years after the Kaikoura earthquake (until State Highway 1 was reopened), so probably used all their savings and lifelines just to hold on. So when Covid lockdown came, sadly, I suspect, they had nothing left. Two Paddocks has opened under new ownership so original owners didn't make it.

The mystery to me is the number of winery restaurants up here in Marlborough which have remained closed since lockdown, including one of our favourites, the spectacularly sited Brancott Heritage Reserve. At a guess I'd say main reason is your third, staffing. The waiting staff were usually, pre covid, youngsters obviously doing their OE's here, so perhaps chefs and kitchen staff were the same, thus simply lack of staff now until that set can travel again. That's possibly proven also by Alan Scott - another one of our old favourites - finally reopening but not as a restaurant, just a bistro - ie, they don't need a 'chef' as such.

Staffing would seem the logical reason also because the few winery restaurants still going, St Clair, Wairou River, Withers Hill, seem buzzing when we're there, and we've often had to book to get a table. So it wouldn't seem patronage.

Whatever, we're foodies, so I hope they all come back.

It probably depends on whether the restaurant is owned by the winery or is leased from the winery. Those that are on leases probably could not afford to survive through the Covid lockdown and lack of international tourists. Those that own the premises have much lower costs and can probably afford to keep going, although once school goes back and the domestic tourism season is over, its a long stretch to the next school holidays/Easter. Then its winter and everything shuts anyway.

Now that cafes and restaurants can no longer get migrant workers to work for free (thanks to employees paying back their wages in return for visa sponsorship) many hospitality venues are no longer viable.
As for non-migrant reliant venues, with all the back rent owed from lockdown, the minimum wage increase that occurred in April 2020 despite Covid lockdowns (and another one due in 3 months), the big increase in food costs, and its no surprise that many small business owners have chosen to cut their losses rather than carrying on trading while insolvent and facing the risk of losing their house that they had to put up as security for their business loans and leases.

Can't wait for FLP. RBNZs profligate use of credit creation is going to drive house prices towards infinity at great speed. Actually I'm surprised that the current Government haven't given them a sharp tug by the remit as it will hinder them next election.