The bully strikes back

The Herald reports:

The Reserve Bank (RBNZ) is upping the ante, trying to quash the narrative its approach towards regulating banks is hampering competition.

The Herald understands RBNZ governor Adrian Orr wrote to the bosses of the bigfour Australian-owned banks late last week, using rather colourful language to defend the amount of capital the regulator requires banks to hold.

Orr is believed to have sent the chairs and chief executives of ANZ, ASB, BNZ and Westpac letters replicating the letter to the editor he sent the Herald in response to an opinion piece written by Roger Partridge, the chair of the partially bank-funded think tank, The New Zealand Initiative.

“The author lays blame for the lack of competition in the New Zealand banking sector at the feet of the Reserve Bank’s capital requirements and credit risk weights for retail banks,” Orr said.

“This is tired, misleading, and needs to be called out.

“I am unsure what to be most concerned about: that the retail banks who are members of the NZ Initiative believe this? Or, they don’t, but are still willing to sponsor this?”

This type of bullying behaviour is incompatible with the role of Reserve Bank Governor.

Having the NZ Initiative and the Reserve Bank Governor disagree on an area of banking regulation is not particularly noteworthy or unusual.

Having the Governor write to banks and say he is concerned that they are members of the NZ Initiative is an attempt to bully them into withdrawing their memberships. It is a classic bullying attempt to shut down dissent.

What makes this worse is that the Reserve Bank Governor has enormous powers over banks. He registers them, can impose conditions on their registration, approve ownership changes, investigate a bank, give directions to a bank, impose policies on capital and lending etc. So to have someone with such enormous power over banks, to write to them and effectively warn them against membership of a think tank that disagrees with the Reserve Bank is extremely problematic.

The Reserve Bank Board should be acting to make clear this is unacceptable. And if they don’t, then maybe some new Directors are needed.