WhyisNZ’sheadin sand on financial fails?
Banking bust-up latest drama to suggest need for full sector review
It’s farcical that Grant Robertson is forced into begging bank heads and the regulator to effectively grow up and call off their war of words over the Reserve Bank’s proposal for capital hikes.
The stakes are high and the public is quite properly concerned that banking chief blandishments — led by ANZ’s Australian boss Shayne Elliott who spectacularly suggested the bank might reduce funding for the rural and SME sector in NZ if the Reserve Bank’s proposal becomes reality — may indeed have some substance to them.
Instead of calling for calm, the Finance Minister should be asking himself how come New Zealand has got itself into this position where the Australian banks are “toe to toe” with an easily rattled Reserve Bank Governor.
And more to the point why is it not high time for a full Royal Commission of Inquiry into the New Zealand financial sector — banking, insurance and other financial institutions — which has at its core the very question about whether our regulators are up to the job of supervising the sector in the first place and whether our banking structure is fit for purpose. New Zealand’s purpose that is, not that of Australian banking shareholders.
In my view the Reserve Bank has long proven to be a laggard when it comes to effective prudential supervision of the financial sector. Two recent examples:
ANZ Bank NZ chairman Sir John Key has admitted the directors (including himself) failed in their obligations to the Reserve Bank over the use of a risk capital model that was decommissioned without approval. Key is correct. But surely the Reserve Bank should have been much more front-footed when the International Monetary Fund (IMF) came to New Zealand in 2017 raising questions on why banks had been using a negative attestation process. It took ANZ a full 18 months to uncover its ultimate parent bank decommissioned the [Reserve Bank] approved model without ensuring that it had the necessary regulatory approvals in place to move to a new model.
Surely, a regulator on top of its
game would have chased this down earlier?
Staying on ANZ, senior banking circles suggest the Reserve Bank did play a strong part in ensuring the reasons for the departure of former CEO David Hisco were publicised. But again, why is the Financial Markets Authority the only regulator to undertake a post-fact review? And why is the Reserve Bank not reviewing his overall period as CEO?
Second, the spectacular own goal over CBL Insurance. Despite early concerns over solvency, the Reserve Bank took its eye off the ball when it came to the NZ insurer.
On Wednesday, the Reserve Bank’s senior officials accepted that as prudential regulator it should have acted more forcefully and at an earlier stage, amid a range of concerns about CBL Insurance dating back to August 2013.
Frankly, that is just not good enough given that in 2013 an internal RBNZ report said CBLI was probably insolvent but the regulator was reluctant to overrule the assessment of the company’s appointed actuary. Surely, that is
The Reserve Bank has long proven to be a laggard when it comes to effective prudential supervision of the financial sector.
why we have a regulator in the first place?
According to a report, the ultimate failure of CBL Insurance was a “dramatic” example of the inadequacies of prudential regulation and supervision for insurers and backed the case for greater resourcing. It was a fail pure and simple.
Dig deeper in past history and plenty of other issues emerge.
In 2014, the incoming Financial Markets Authority CEO Rob Everett said the Reserve Bank had got it wrong when it came to finance company collapses that so knocked investor confidence in the 2007-09 period.
The Reserve Bank may have been right to say the overall capitalisation of the finance companies — and the amount of investors’ cash at risk — did not pose a systemic threat to the financial system but that ignored the point that real losses occurred.
Then there is the absurd fiasco with South Canterbury Finance where Key earlier confirmed that shortly after the 2008 election, he was warned South Canterbury Finance could “go down”. Key said the warning came from Reserve Bank Governor Alan Bollard. But a government guarantee was put in place.
Go back further again: there were no inquiries into the DFC collapse or why the Bank of New Zealand had to be bailed out twice.
In Australia, they do things differently. Why does New Zealand simply sweep major failures under the carpet?