Campaigners’ new push for break-up of big banks
Three anti-oligopolists are to unveil a plan for a Telecom-style split for big Australian banks, writes
The OECD says banks in New Zealand are twice as profitable as they should be, but today a trio of anti-oligopolists will unveil a blueprint designed to usher in cheaper banking for households and businesses.
Tex Edwards, the founder of 2degrees, social investment expert Kent Duston, and Ernie Newman, whose campaigning helped bring about the break-up of Telecom, will launch the Banking Reform Coalition (BRC) at the Commerce Commission’s three-day conference in Auckland on bringing competition to the banking oligopoly.
The trio will lay out the BRC’s blueprint for reform, which they hope will lead to cheaper banking, ending what Duston called the “wealth pump from New Zealand across the Tasman to the benefit of the Australian banks”.
Duston said unlike suggestions to recapitalise Kiwibank to compete with Australian-owned ANZ,
Westpac, Bank of New
Zealand and ASB, the BRC’s reforms would not cost the taxpayer a penny.
The BRC’s proposed reforms echo changes to the telecommunications sector a decade ago when Chorus was split out of Telecom, reducing Telecom’s massive market power.
“We seek that the banking sector be separated into retail banks, wholesale clearing banks, and enabling infrastructure, using the same model as the telecommunications industry, in order to remove the excessive market power of the Australian banks and to allow innovation and competition to flourish,” Duston said.
Under the BRC, banks would be allowed to be either clearing banks, acting as wholesale banks serving the banking industry, or retail banks competing to provide accounts, loans and deposits to households and businesses, but not both.
Duston, Edwards and Newman complimented the Commerce Commission on its work which identified the high profitability of banks in New Zealand compared to banks in other countries, but said current suggestions for reform would not fix the problem.
“All the big four banks are owned out of Australia and Australia is making an inordinate amount of money out of New Zealand,” said Duston. “The OECD’s latest study on New Zealand said that New Zealand’s banks are twice as profitable as they really should be.
“In Europe, banks make about 7% return on capital; here in New Zealand, they’re making 15% return on capital. And the OECD is saying that that’s not warranted by the level of risk that they’re taking,” Duston said.
“This year, $7.2 billion got exported across the Tasman by the Australian banks back to Australia,” Duston said. That was $3 billion to $3.5b more than was justified, adding up to nearly $10 million a day in “unearned and unjustified” profit, he said.
“This is looking like Australia is treating us like a colony, where effectively we are a wealth pump from New Zealand across the Tasman to the benefit of the Australian banks.”
The money came from excessively high loan rates, and excessively low deposit rates, BRC said.
As well as splitting banks into clearing banks and retail banks, BRC will say that New Zealand’s payments platform, currently Payments NZ, must no longer be owned by a consortium of banks, but be placed in independent ownership to stop the strangulation of open banking.
Under the BRC blueprint, Payments NZ, or its replacement, would be allowed to make a profit, but this profit would be regulated by legislation, in the same way as Chorus for telecommunications and lines companies for electricity supply.
“These simple and easily implemented changes will establish a level playing field for all current and emerging banks, and allow competition and innovation to flourish,” Duston said.
But there’s another part of their reform blueprint that will raise eyebrows: BRC is calling for “restitution” for years of excess profits in the form of a windfall tax.
“We seek the levying of an immediate windfall tax on the excessive profits of the Australian banks, equivalent to 50% of their post-tax profits over the last five years. These profits were simply taken, rather than earned, and need to be returned to New Zealand to benefit our people and our nation,” BRC says in its manifesto.
“These excessive profits are not being re-invested into our financial systems. Our country is now decades behind other developed nations – we don’t have real-time transactions, account portability, or the vibrant Fintech sector that has rejuvenated banking overseas,” Duston said.
There’s another element to the BRC blueprint for reform: They want banking services to be legislated as a fundamental human right to end the plight of as many as 50,000 Kiwis who do not have a bank account.
A particular problem has been identified with the number of vulnerable young people without bank accounts, but ex-prisoners and people who are bankrupted can also find themselves struggling to stay banked.
The conference is part of the Commerce Commission’s market study into retail banking, ordered by the last Government after public pressure for cheaper banking.
Duston said the launch of the BRC mirrored the creation of the Grocery Action Group after the commission’s market study into the high price households pay for groceries, and the Affordable Building Coalition, which was formed after the commission’s market study into the high cost of building materials.