Day of reck­on­ing

Sunday Star-Times - - NEWS - Hamish Ruther­ford hamish.ruther­ford@stuff.co.nz

Hamish Ruther­ford on why banks are due a telling off

The two men tasked with mon­i­tor­ing the fi­nan­cial sec­tor will walk a tightrope this week when they re­lease a key re­port on the be­hav­iour of New Zealand’s banks. Re­serve Bank gov­er­nor Adrian Orr and Fi­nan­cial Mar­kets Author­ity chief ex­ec­u­tive Rob Everett must give the banks enough of a telling-off that the pub­lic has con­fi­dence that the hugely prof­itable sec­tor is un­der the mi­cro­scope, while at the same time get­ting the agree­ment of the banks to do what they are told. To com­pli­cate mat­ters, the re­port’s au­thors have al­ready played down just how much of a cul­ture prob­lem they found when they looked un­der the hood. Orr, at least, is fa­mous for his com­mu­ni­ca­tion skills, but if his rhetoric does not match what banks are told to do in re­sponse to the re­port, will he be taken se­ri­ously? To­mor­row’s re­port is meant to be about con­duct and cul­ture, not prof­its. It was ini­ti­ated in the wake of the Aus­tralian Royal Com­mis­sion into the fi­nan­cial ser­vices in­dus­try, which un­cov­ered both il­le­gal be­hav­iour and wide­spread sell­ing of prod­ucts to con­sumers who had no busi­ness buy­ing them. Although the four banks which dom­i­nate bank­ing in New Zealand are the same four banks which were ac­cused of greed and of put­ting short-term profit in front of hon­esty across the Tas­man, an in­terim find­ing by Orr and Everett said they had not iden­ti­fied sys­temic prob­lems here. But even though the re­port is not about prof­its, the de­bate which fol­lows could well be. It is be­ing re­leased less than a week af­ter ANZ re­ported a profit of vir­tu­ally $2 bil­lion in its lat­est fi­nan­cial year and in a pe­riod when cor­po­rate prof­itabil­ity is un­der the mi­cro­scope. The tim­ing is no fluke. A month ago, the Prime Min­is­ter de­clared mo­torists were, in her view, be­ing ‘‘fleeced’’ by petrol com­pa­nies. It hardly takes a crys­tal ball to see the same type of ques­tions be­ing asked about bank­ing soon. If Aus­tralian banks were found to put greed over hon­esty, how can there be no ma­jor is­sue in New Zealand where bank prof­itabil­ity – re­turn on eq­uity – is ar­guably much higher? The for­mer Na­tional-led Gov­ern­ment tended to re­spond to ques­tions about bank prof­its with a mes­sage which was cer­tainly true, but may have come straight from the bank lob­by­ist quote book: A strong bank­ing sec­tor is key to a strong econ­omy. Now the mood may turn to one where the banks face pres­sure to jus­tify how much money they make. ‘‘Large bank prof­its are not new,’’ Fi­nance Min­is­ter Grant Robert­son said this week of ANZ’s re­sult, be­fore draw­ing a di­rect link to to­mor­row’s re­port. ‘‘What this does em­pha­sise is that it’s im­por­tant for banks to have a so­cial li­cence to op­er­ate in New Zealand, in­clud­ing through their cul­ture and con­duct, and I look for­ward to the RBNZ/FMA re­port on that next week.’’ Ex­actly what a ‘‘so­cial li­cence’’ means is dif­fi­cult to de­fine. But Robert­son ap­pears to be sug­gest­ing that even if the banks are not found to be do­ing any­thing il­le­gal, more might be ex­pected than just the let­ter of the law. Robert­son’s Cab­i­net col­league, NZ First’s Shane Jones, may send a much less sub­tle mes­sage. If to­mor­row’s re­port does not con­vince the pub­lic that the banks have been put on their best be­hav­iour, Jones and oth­ers may pose much wider ques­tions about whether the banks are meet­ing the stan­dards we now ex­pect of them.

Grant Robert­son’s Cab­i­net col­league, NZ First’s Shane Jones, may send a much less sub­tle mes­sage.

STUFF

If Re­serve Bank Gov­er­nor Adrian Orr and Fi­nan­cial Mar­kets Author­ity chief ex­ec­u­tive Rob Everett can’t con­vince the pub­lic that the banks are be­hav­ing, the likes of Shane Jones will speak out.

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