Finance Minister Nicola Willis says she has spoken with the Chairman of the Reserve Bank’s board after receiving a letter alleging Governor Adrian Orr breached the central bank’s Code of Conduct.
It's the latest development in an ongoing stoush between the Reserve Bank boss and the New Zealand Initiative, a business-funded think-tank.
It started last week when NZ Initiative Chairman Roger Partridge wrote a newspaper column arguing banking regulations are too strict and are hampering competition in the sector.
The Commerce Commission has raised concerns about bank capital settings, overseen by the Reserve Bank, in its market study into the retail banking sector. The Reserve Bank has pushed back on these.
The rules include the big four Australian-owned banks, which are all members of the NZ Initiative, are required to raise the capital they hold from 10.5% of their risk-weighted loan exposures to 18% by July 2028. That's more than the 16% smaller banks will be required to hold because the big four are deemed systemically important. However, the big four have an advantage in being able to set their own models for measuring credit risk exposure which they must get approved by the Reserve Bank. In contrast smaller banks' capital models are set directly by the Reserve Bank.
The Reserve Bank designed the increased capital requirements to make banks able to withstand a one in 200 year crisis. However, critics argue the settings are too conservative and may result in banks being less willing to lend to higher risk sectors.
The big four, ANZ, BNZ, ASB and Westpac, opposed the higher capital requirements when they were introduced in 2019. The stricter rules are still being phased in.
Orr wrote a letter to the editor of the NZ Herald, which published Partridge’s column, saying the argument was “misleading” and “needed to be called out”.
This letter questioned whether the retail banks shared the NZ Initative’s opinion, or if they didn’t but were willing to sponsor them anyway. Orr also forwarded it to the four banks.
Oliver Hartwich, NZ Initiative’s executive director, wrote a letter to the Minister of Finance and Neil Quigley, Chairman of the Reserve Bank board, alleging Orr had breached the Code of Conduct.
He was unhappy with the language Orr had used in his response, as well as a possible suggestion the column was serving an ulterior motive on behalf of retail banks.
Call in it
Speaking to reporters on Friday, Willis revealed she had received a letter of complaint and that she had phoned Quigley, to discuss it.
“I noted that we had both received the same letter, alleging breaches of the code of conduct, and I reiterated to him that if I was asked about that, I would view that as a matter for him and not for me,” she said.
Willis said she will respond to the letter only to highlight that it was not appropriate for her to be involved in this complaint due to the independence of the central bank.
She said Quigley had been told it was her expectation that the board should take responsibility for all employment matters.
The Reserve Bank’s Code of Conduct says any allegations of breaches would be taken seriously and actions found to be “knowingly in breach” may result in disciplinary action.
Quigley said in a brief statement he had received the letter and wouldn’t be commenting on it at this stage.
The New Zealand Initiative is a public policy research institute that promotes free markets and small government.
Its members include the four big banks as well as: British American Tobacco, Coca-Cola, Air New Zealand, Countdown, Google, NZ Aluminium Smelters, alcohol group Lion, and others.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.