Orr’s culture and conduct in question
Reserve Bank governor Adrian Orr would like to see the big and very profitable Australian banks, which dominate the New Zealand market, put up more of their own money to safeguard against shocks.
In order to protect the public from financial crisis he’s hit on a large and possibly expensive number. The ‘‘systemically’’ important banks should hold additional shareholder capital against the loans they make, significantly boosting the level currently required of them.
The move has plenty of critics but that debate must be put aside for now. The extraordinary way in which Orr has conducted the process to solicit opinion on his proposal raises this question first: does the end justify the means?
In December, the Reserve Bank released its boosted capital reserves proposal and asked all interested parties to make submissions.
It would be an open process, the bank said, welcoming all views. But that characterisation was soon at odds with the governor’s behaviour.
Numerous parties involved in the submission process described a pattern of behaviour by Orr of belittling and berating those who disagreed with him.
Orr has penned his critics letters which he threatened to broadcast. He has confronted submitters on the sidelines of industry conferences. Sometimes he called them up at odd hours to tear a strip off them.
There is reason to believe that his pointed criticism has diminished the range of parties willing to participate in the debate.
At least one corporation that submitted views at an earlier stage in the capital review (before Orr was governor) decided not to participate this time. The company is not in the banking business, though like most it cares what bank services are offered and at what price. But it ultimately decided it wasn’t worth wading into such troubled water.
Non-bank lenders similarly withheld their views. Sources say they feared being singled out for other consequences (one non-bank lender active in New Zealand is owned by an insurance company, an area of business that is also under scrutiny by the Reserve Bank).
It is worth pausing here to consider Orr’s position.
The governor of the Reserve Bank is responsible for both the country’s monetary policy and also the prudential regulation of a critical swathe of the economy, including banks and insurers. He is largely independent of the government. Central bankers wield extraordinary, unelected power. And for that reason they have a well-earned reputation for extreme circumspection.
To provide a little context, Orr was recently compared in his outspokenness to Bank of England governor Mark Carney.
Paul Waldie covers Carney in London as the European correspondent for Canada’s Globe and Mail newspaper. Carney was previously governor of the Bank of Canada.
Carney has been criticised for playing politics in his estimations of the cost of Brexit in the United Kingdom.
But Waldie is emphatic. ‘‘He’s never rude. He’s never personal. He doesn’t hit back at his critics. He’s cool-headed.’’
Carney provides no precedent for phoning adversaries after hours, neither blasting them from the lectern or on the sidelines of industry meetings and events.
On the contrary, Orr appears to be unrivalled among central bankers in the developed world for the tempestuous and personally directed venting of his views.
Annelise Riles of Northwestern University’s Buffett Institute for Global Affairs, who has studied the behaviour of central bankers and has even written a book about them, couldn’t think of a single comparator in contemporary times.
Central banks certainly use many channels to communicate with banks, she said. And it’s not uncommon for central bankers to let banks know how they feel.
‘‘But berating them publicly is just not seen very much,’’ she said. And though private exchanges are less visible, she couldn’t think of any examples of bald incivility or hostility.
Orr’s chequered behaviour is not something on which the Reserve Bank chairman, Neil Quigley, is prepared to act.
‘‘I have not received a formal complaint from any party about the governor’s interaction with them,’’ he said. ‘‘The board has full confidence in Adrian Orr’s leadership.’’
Nevertheless, Orr’s conduct is a feature that has clouded the process for soliciting views on bank capital reserves. And that matters. Not because Orr’s aim of creating a stronger and more stable financial system in New Zealand is an unimportant one, but because a top technocrat who sets out to hold an open process for soliciting views is bound to do his utmost to achieve one.
Orr appears to be unrivalled among central bankers in the developed world for the tempestuous and personally directed venting of his views.