Banks are the next target for government meddling

Credit: Robert Kitchin/STUFF

The Reserve Bank has recently undertaken a review of New Zealand banking practices, with a focus on conduct and culture.  This was initiated because of issues identified with some of the major banks in Australia.  Stuff reports:  Quote: 

The head of the Reserve Bank is questioning whether New Zealand’s banks are making super-profits by under investing in areas such as protecting customers from misconduct.

In recent days three of New Zealand’s four major banks have reported profits in excess of $1 billion, with ANZ, New Zealand’s largest bank, reporting a profit of virtually $2b.  End of quote.

The big nasty banks are making a profit.  For those that have already forgotten about Freddy Mac and Fanny Mae, it’s good for banks to make a profit.  It means they are robust and their operating policies are sound. Banks that fail are not good for investors or customers.

But I digress, what did the review find about the culture of New Zealand banks?  You can read the full review here, but in summary: Quote:  

Our review found a small number of issues related to poor conduct by bank staff. Issues relating to system or process weaknesses were more commonplace. Based on these findings, conduct and culture issues do not appear to be widespread in banks in New Zealand at this point in timeEnd of quote. 

So the review found there really isn’t anything to get too excited about.

But Ms Ardern was not deterred by the facts.  Quote:

Prime Minister Jacinda Ardern told reporters that the Government wanted a “fairer” banking system.

“Banks do need to lift their game and be better at identifying problems and risks early on and fixing them.”

The Government would await the final report and also the release of the Australian Royal Commission into financial services for what could be learned from that.

“Today’s report is not the end of the line on the issue, in some ways it is the beginning of closer oversight and scrutiny.

“Banks should remember that it is a privilege, not a right, to operate, and customers needs must come first.”  End of quote.

Banks, you are on notice.  Ms Ardern will be doing her best to meddle.  She will be expecting you to forget about making a profit and concentrate on being ‘fair’.  What does ‘fair’ actually mean?   Quote:

The headline directive to banks are around changes to product sales, with the banks given just over a year to remove sales incentives pressuring staff into selling products like personal loans, credit cards and insurance. end of quote.

Banks offer customers products and customers are perfectly entitled to decline them if they don’t want them.  I really don’t see what the problem is here.  Next, we will hear that McDonald’s will be forbidden to ask ‘would you like fries with that?’ quote.

Those which do not, will have to convince regulators they have systems in place to effectively prevent mis-selling of financial products and services to customers.

However at Monday’s press conference, Orr admitted that he did not have the power to compel the banks to remove the incentives.

Orr told reporters that the bank had the power to investigate banks and demand changes where the Reserve Bank believed a bank was being reckless.

“We have powers of investigation, but powers of enforcement to get rid of it, no,” Orr said.

“I am very much of the position that banks will not be incentivised to try and play unusual games around this.”

Financial Markets Authority chief executive Rob Everett said there was the option to name banks which were dragging their feet.

“If by March we’re hearing back from the banks that they’re not willing to consider making changes to their sales incentives, then our intention would be to report on where that overall dynamic sits, and let banks take the public consequences of doing that.”   End of quote.

Ah, the good old name and shame tactic. Bullying, in other words. There is no regulatory framework for the Reserve Bank to enforce this.  This means that there is no mandate and that this is outside their brief.  Adrian Orr is letting the power go to his head by deciding that the nasty big profit making banks need to be brought into line.


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