Day of reckoning
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.