Should the Government own a bank?
It's a simple enough question to ask.
But I think it is devilishly difficult to answer.
In the New Zealand context it's a question that has been around for years. There was the BNZ of course and the various misadventures around that after the 1987 stock market crash.
Then more latterly there has been Kiwibank. And, let's face it, now the Government has unequivocally decided to buy the bank out, there WILL BE Kiwibank as a state owned bank. For how long? Well, interesting.
I straight up have to say that I'm disappointed by this development.
I confess to having flip-flopped around a fair bit over the years over the idea of Government ownership of a bank.
Generally I still think governments shouldn't own commercial businesses. And obviously things like airlines and power companies come to mind as well in this category.
Where the subject gets really sticky is when something's an essential service or is, or close to, a monopoly. There are arguments that go both ways. For example I have been a long term opponent of we the taxpayer owning Air New Zealand.
And yet, I do have to confess that during this unprecedented last two and a half years, state ownership of the flag carrier has been a bit useful.
A bank theoretically is not quite in the same category. There's a number of them for a start and they don't have quite the same 'essential' characteristics as something like power supply. Although, granted, it would be quite difficult getting around without a bank account these days.
But a bank is nevertheless something that inspires a mass of contradictions in thinking. We don't like to see banks making too much money - which apparently they appear to be.
We don't, however, want to see our banking LOSING money do we? Because that has all sorts of potential ramifications.
The original idea of Kiwibank as an NZ bank for NZers, helping out NZers etc was noble. But in reality, unless a government is prepared to run a bank strictly as a social service and very definitely at a loss, the idea of a bank as a social service probably won't work.
For the most part then Kiwibank has been run on a strictly commercial basis and hasn't appeared, to me, to be all that different to the Australian-owned banks. Yes, a feelgood factor in it being, well, Kiwi, but not much different otherwise.
Politically championed by the late Jim Anderton when he was Deputy Prime Minister, Kiwibank has been interestingly positioned, in the sense that it has not really felt as though it is state owned.
It was a master stroke to originally place it under the ownership of NZ Post at inception in 2002, since this made it sort-of-not-seeming-to-be, while actually, state-owned.
What wasn't foreseen at the time Kiwibank was born within NZ Post was the fact that almost everybody would eventually stop getting letters. The world changed. NZ Post had to change. And owning a bank was a bit tough.
I was therefore delighted when in 2016 the NZ Super Fund emerged as a shareholder. This seemed to me to be the perfect solution. NZ Super is for the state but, in essence not really OF the state despite Government ownership. It's independent and it has commercial imperatives. It needs to make a buck, a lot of bucks - and so it has. And we will need them.
I guess what I hoped was that the Super Fund would be able to somehow engineer those strong commercial returns from Kiwibank over the long term.
The fact that it wanted to have the option of bringing in outside shareholders and wanted to retain its options regarding an exit from the bank tells you everything you need to know, unfortunately.
I completely respect where the NZ Super Fund is coming from on this one. The fund has a huge role to play in the future wellbeing of Kiwis and it can't be and won't be co-opted into providing a social service now that will prevent it from doing its job to help fund pensions later.
So, it's unsurprising, but disappointing, to realise that ultimately the Super Fund couldn't see simply owning Kiwibank long term as fitting in with its own future imperatives.
The question then is: If the Super Fund, with all its undoubted investment expertise, didn't see Kiwibank offering it sufficient long term returns - what will this and future Governments be able to do?
I go back to an earlier point about a 'social service'. Is this to be Kiwibank's lot now under unambiguous Government ownership?
The problem with that is a fear you would be condemning the bank to being a loss-maker. As I said earlier, we don't like the idea of banks losing money. But of course it's not a problem if said bank is actually owned by the Government.
However, are we as a nation prepared to say that we would be happy from now on and into the future to be tipping taxpayers' money into a bank, simply so we can say its ours and it's helping us out? How much money would we have to tip in? And what would be our perceived return?
Maybe there are people out there who think that is a good idea.
And there definitely is value in the idea of 'for the public good'. We shouldn't necessarily think that something that's providing a valuable public service has to turn a buck as well. There is such a thing as investing in things for good social outcomes.
But how much of that can we ultimately achieve through a bank?
The other thought that comes to mind is, if Kiwibank began to be operated on a social-first basis and was maybe undercutting other banks on interest rates and fees and things, what sort of distortions would this cause in the banking industry?
Yes, I've indicated further up in this article that I think our banks do make too much money. But it's that strange juggling act, isn't it. If some of the big Aussies thought that NZ was becoming unprofitable they just might consider leaving. And less banking options definitely would not be good.
At the end of the day, I'm not sure how well thought out this decision by the Government to take full control of Kiwibank has been.
I would like to, see pretty soon after the deal is finalised, a fairly fulsome outline from the Government of how this is all going to work. How Kiwibank will be operated as a commercial(?) bank. How the Government will fund it - because it's to be presumed it will need future funding. What the 'end point' is. Does the Government see itself owning the bank now in perpetuity?
Without some clear statements of intent from the Government, I fear that this whole thing could ultimately be corrosive for Kiwibank. And that would be a shame.
I think Kiwibank has done real well. But arguably, with what has happened, we've now seen clearly how hard it actually is to set up and run a bank like Kiwibank long term.
And I don't for a moment imagine it will get any easier.
No, the Government can't just hope to quietly consummate this takeover deal and then, sort of, well, you know, let things drift along.
We need a plan. And frankly, I don't think I need to shout from the rooftops that this Government more so than any in my living memory, has no track record when it comes to developing and executing a plan.
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