Governor accuses banks of 'scaring the public' (2024)

Reserve Bank Governor Adrian Orr has taken a swipe back at the banks which have been putting the boot into the central bank over its proposed changes to capital requirements.

Speaking to MPs this morning at the Finance and Expenditure select committee, Orr accused banks of "scaring the public" with their aggressive lobbying against the proposed rules.

He said banks have been "suitably aggressive" in the way they have been discussing any capital requirement changes, particularly around the agriculture sector.

But the Bankers' Association said banks are just trying to strike the right balance between the risk and costs of any new rules.

Orr's comments come just weeks after Finance Minister Grant Robertson called for calm in the debate around capital requirements.

The Reserve Bank has proposed increasing the amount of money banks have to keep in their reserve.

Orr is worried about the "excessive" level of borrowing that has occurred over the past decade at a time when banks have been undercapitalised – not holding enough money in reserves.

Banks have pushed back hard against the proposed rules; none more so than ANZ.

It has warned that farmers may face higher borrowing costs if the proposed rules come into effect.

ANZ's most recent results show its share of New Zealand's $62.5 billion agricultural lending market stood at 28.5 per cent in February.

The Aussie-owned bank's chief executive, Shayne Elliott, has also threatened to review the "size, nature and operations" of New Zealand if the rules are imposed.

Although he didn't call out ANZ by name, Orr told MPs today some banks have been "suitably aggressive, and have been lobbying and scaring the public, particularly around the agriculture sector".

He said banks have been saying that the financial hit, as a result of any changes, would be much bigger than the Reserve Bank expected it would be.

But Orr anticipates any hit to bank margins as a result of the proposed rules would be equivalent to 0.2 per cent of their total margins.

"One of our major banks has been the one that has been the most aggressive in lending and the most under capitalised in the agricultural sector," he said.

The Governor's comments come just a week after Associate Finance Minister Shane Jones visited ANZ's head office in Australia to voice his concerns about threats the bank would reduce its banking footprint in the regions if the rules go ahead.

He also said he would listen to ANZ chief executive Shayne Elliott's concerns around the proposed capital requirements.

Speaking to Q&A on Monday, Jones said he came out of the meeting with an understanding that the bank would be passing any costs onto its customers.

"If those capital requirements go through, my interpretation of Mr Elliott is that they [ANZ] will significantly change the model of operation in New Zealand."

Jones added that the farming community would bear the brunt of any changes.

Bankers' Association chief executive Roger Beaumont said it was up to each bank as to how it responded if the rules come into effect.

"Our independent economic analysis suggests there will likely be tightening of lending in some parts of the economy such as small business and agriculture."

Orr's comments today was not the first time he had been critical of the bank's response to the proposed changes.

He has said he expected the strong critical response from the banks because he was aware of "the capability and resource" within the industry to lobby for the status quo.

"It is a very, very powerful industry."

"We're not trying to win votes, we're not trying to be popular, we're just trying to make sure people understand why we exist and the context."