‘Bailout’ the only realistic option
owner Commonwealth Bank, even though there would be efficiencies of scale if they were allowed to do so.
Also, creditors cannot hold a foreign parent bank liable when its New Zealand subsidiary fails. It’s therefore unlikely that foreign ownership would significantly change Kiwibank’s operations.
But the prospect of foreign ownership could add value. It could encourage its management to step up efforts to grow and compete.
With a 5% market share, Kiwibank is small and lacks the critical mass required to thrive and compete effectively. Its small size is already problematic, as the bank cannot serve large clients. The Government, for example, does not rely on Kiwibank for its banking.
The growth opportunities for Kiwibank are further limited because the New Zealand banking market is tightly regulated and conservative. European banks, for example, are much further ahead when it comes to the adoption of new technologies. Money transfers between European bank accounts are executed in real time, while such transfers still take hours in New Zealand.
The Government claims that the banking market has become more competitive since the establishment of Kiwibank. According to Finance Minister Grant Robertson, Kiwibank continues to put pressure on the big four.
That may be so, but other small competitors would do that too. Rabobank, for example, is competitive in farm lending. Other small banks remain wellcapitalised and don’t face the same challenges as Kiwibank.
The most likely way forward for Kiwibank is to further increase lending to riskier clients. Robertson has already alluded to this, arguing
Kiwibank could be a disruptor in the industry by focusing on small and mediumsized enterprises.
The problem is that Kiwibank needs the expertise to do this. Adding capital is not enough. And the Government will want to avoid Kiwibank taking on too much risk because that will put the future of the bank itself at risk.
On top of this is the risk of Kiwibank’s owner wanting to meddle with its operations. While the present Government promises to respect operational independence, who knows what a future government might do.
Finally, there is the question of moral hazard — setting a precedent for other banks. What if one of the other, smaller banks finds itself in trouble? Will the Government step in? Again, the decision to save Kiwibank suggests the future could be uncertain indeed. — theconversation.com
TODAY is Tuesday, August 30, the 242nd day of 2022. There are 123 days left in the year. Highlights in history on this date:
1757 — In the Seven Years’ War, Russian forces under General Stepan Apraksin defeat a Prussian force under Field Marshal Hans von Lehwaldt at the battle of GrossJaegersdorf.
1862 — The Second Battle of Bull Run in the United States Civil War concludes when Confederate forces under General Stonewall Jackson defeat the federal army. Beginning two days earlier, it was the culmination of the Northern Virginia campaign waged by Robert E. Lee’s army of Northern Virginia against the Union’s Majorgeneral John Pope’s army of Virginia. It was a battle on a much larger scale and with greater numbers than the First Battle of Bull Run (or First Manassas), fought 13 months earlier on the same ground.
1881 — Clement Ader patents the first stereophonic sound system in Germany.
1901 — Hubert Booth patents the vacuum cleaner.
1914 — The Battle of Tannenberg, one of history’s great military disasters, ends after the Russian Second Army under General Alexander Samsonov is enveloped and crushed by the Germans, losing 30,000 men; Samsonov committed suicide.
1918 — Vladimir Lenin, the new leader of Soviet Russia, after speaking at the Michelson factory in Moscow, is shot and wounded by Fanya Kaplan, a member of the banned Socialist Revolutionary Party.
1928 — Jawaharlal Nehru founds the Independence of India League in order to work towards freedom from British rule.
1932 — Hermann Goering is elected president of the German Reichstag.
1941 — The World War 2 siege of Leningrad begins as Nazi forces take Mga.
1945 — Hong Kong is liberated when the British navy under RearAdmiral Cecil Harcourt sails into Victoria Harbour to accept the Japanese surrender.
1957 — Senator Strom Thurmond, of South Carolina, sets a filibuster record in the US Congress when he speaks for more than 24 hours against a civil rights Bill.
1960 — East Germany imposes a partial blockade of West Berlin.
1963 — The ‘‘hotline’’ between the Kremlin and the White House, designed to reduce the risk of accidental nuclear war, is installed.
1973 — Kenya bans the hunting of elephants and the trade in ivory.
1979 — Hurricane David devastates the Caribbean island of Dominica on a path through the Caribbean and the Eastern US seaboard that claims 1100 lives.
1982 — PLO leader Yasser Arafat abandons his headquarters in Beirut following the Israeli invasion of Lebanon.
1994 — Russia officially ends half a century of military presence in the former East Germany and the Baltics, the last European bastions for former Red Army forces in the Cold War era.
1999 — East Timor votes in a referendum to decide whether to stay part of Indonesia or become independent. The turnout is a huge 99%, and the result is massively in favour of independence.
2000 — During a visit to Colombia, President Bill Clinton delivers a $US1.3billion aid package, which he says will help the South American country defeat its drugtraffickers.
2001 — A deal is announced between
Telecom and the Community Trust of Otago to install broadband highspeed data communication networks for isolated rural communities in Otago; Papua New Guinea and Bougainville Island rebels sign a peace deal ending the South Pacific’s longestrunning conflict.
2017 — Authorities say floods across Bangladesh, Nepal and India have killed more than 1200 people and damaged 697,000 houses.
2020— India reports world’s highest singleday increase in Covid19 cases at 78,761.