Decision takes heat out of bank issue
Capital levels debate ends with less rancour than it began
Near the end of the Reserve Bank’s press conference on its decision to require the banking sector to raise about $20 billion to bolster its safety buffers, governor Adrian Orr showed a flash of frustration.
“I’m probably getting a little bit tired of having to say it,” Orr said, after insisting, again, that his team was not screwing the scrum in favour or against anyone; it was up to the individual banks to decide how to allocate risk.
Time and again, Orr has faced suggestions that by constraining capital, the move would cause banks to focus more on low-risk sectors — meaning housing — at the expense of small business, construction or, most often and most politically, farms.
This time, fending off accusations that his proposals suffered from a lack of input from the rural sector, Orr shot back that, as part of extensive and exhausting consultations, his colleagues had eaten asparagus rolls in woolsheds.
For observers of the Reserve Bank, and in particular the debate over capital, this was a sign of how far Orr has come, or perhaps, the best evidence that the governor’s wings have been clipped.
Earlier in a year of debating the Reserve Bank’s proposals, Orr may have shot down questions forcefully, but he now appears to be on his best behaviour.
In return for a final decision which offered considerable concessions compared to what was proposed in December, the banks have also backed off from the shrill warnings delivered a few months ago.
“Today’s announcement provides our banks with certainty on the amount and type of capital they will need to hold in future, and brings an end to a robust consultation,” NZ Bankers’ Association chief executive Roger Beaumont said on Thursday.
Robust is an understatement.
When Orr came to the central bank from the Super Fund, he initially acknowledged that it had work to do to improve its relationship with the banks, pointing to feedback from the sector via a report from the New Zealand Initiative.
“We need to think much harder about how we behave, how we roll, how we explain, how we do things,” he told Stuff in 2018.
But by the middle of 2019 the sector was on the verge of warfare with its regulator, with banks and business groups lobbing warnings that the move would cost consumers, slow the economy and could see banks pull back from lending in New Zealand in a major way.
Initially it seemed Orr was keen to shock the banks, dropping much stiffer than expected proposals just before Christmas.
But in the early part of the year he seemed rattled, with numerous stories of him becoming confrontational with those who questioned him.
From time to time the strain appeared to show in public.
At an earlier Reserve Bank press conference, Orr rebuked experienced Businessdesk journalist Jenny Ruth and refused to take her questions, an extraordinary move from an official whose central job is communication.
It was not the only time Orr has pushed back publicly at the media, nor was it the strangest.
Back in May at a select committee appearance, National’s Paul Goldsmith asked Orr about criticism he had faced for not giving speeches on monetary policy, a tradition of his predecessors.
Orr responded rather reasonably that while he hadn’t, many of his colleagues had, while the Reserve Bank published plenty of its thinking on its website.
But he then went on to complain that some of the criticism he was receiving was personal “and in the era of Me Too, it is so unnecessary”, going on to ask journalists to think carefully about who they quoted (a sign of frustration at the criticism from former Reserve Bank official turned blogger, Michael Reddell).
His comments were noticed by Wellington employment lawyer
Steph Dyhrberg, a staunch critic of law firm culture after the Russel Mcveagh scandal, who shot Orr down. “Adrian Orr #metoo is about sexual assault,” Dyhrberg wrote on a Facebook post. “I don’t think it is appropriate for you to reference this in relation to media criticism of your performance of your role.”
As the submissions on the capital plan came in, the warnings of the impact on lending were a headache the Government did not need, at a time when business confidence was sliding and economic growth slowing.
Minister of Finance Grant Robertson both brought the issue to a head and helped cool things down, issuing a statement virtually pleading for calm. “I am calling on all interested participants to listen to and work with each other constructively as this work is carried out,” Robertson said in a statement.
At the time, the statement was taken by many as being aimed at the banks, in particular ANZ, which infuriated the Beehive when it did nothing to undermine reports that its submission amounted to a warning it may pull back from New Zealand if the capital proposals went ahead.
But Robertson’s statement also appeared to include the regulator, suggesting frustration at the bank’s approach to the fractious process.
Likely combined with increasing focus on his approach, the governor has taken a far more restrained approach in the months since.
This week when Orr appeared again before MPS, he signalled a focus in 2020 on the conduct of the insurance industry.
When Paul Goldsmith, National’s finance spokesman, asked Orr if he had any comment on his own conduct or reflection on his behaviour, Orr simply refused to comment.
Robertson is once again urging the regulator and the sector to focus on implementing the capital plan.
With his Government heading into an election year hoping to argue that the economy is — while slowing — continuing to deliver for New Zealand, he will be hoping that the recent de´tente in the financial system is enduring.