Rule change risks taxpayer bailout

Banking experts are warning changes to bank disclosure rules could increase the likelihood of a taxpayer bailout.

Submissions on the Reserve Bank’s proposed changes to regulatory requirements closed on Wednesday.

Economist Michael Reddell, a special advisor at the central bank until April, said in his submission the tendency to water down disclosure rules was unfortunate.

But even more concerning was the central bank’s shift toward collecting information privately.

‘‘There

is, as a result, a growing gap – and a major inconsistency – in the system.’’

If the central bank had revealing information not available to the public, depositors could argue it was responsible for losses in the event of a collapse, he said.

‘‘Such arguments, correct or not in some narrow economic sense, will strengthen the (already high) likelihood of government bailouts.’’

Reddell suggested scrapping the existing disclosure regime entirely. Banks could instead be required to published regulatory information on their websites, immediately after sending it to the Reserve Bank.

As a starting point, that information should include any regular statistical data provided by all or most banks.

Massey University banking expert David Tripe said the disclosure regime was originally designed so the Reserve Bank would have the same information on bank safety and soundness as the general public. That would protect it from accusations it had failed to act on warnings of any impending difficulties.

The fact the Reserve Bank was now demanding more information from the banks on a confidential basis was not good, Tripe said.

‘‘The ability of the Reserve Bank to exempt itself from responsibility for bailing out customers in the case of bank failure may already have been compromised.’’

One of the major proposals in the stocktake involves halving quarterly disclosure statements to twice a year – a move the regulator said would result in ‘‘significant cost savings for banks’’.

However, Tripe said any such costs were ‘‘inconsequentially trivial’’ in the context of banks’ overall expenses and profits.