Wake-up call in banking should be heeded by the regulatory agencies, too

“PM:  If  banks won’t  act lift game, we’ll  act”.  So read the headline in  Tuesday’s  NZ  Herald.

Sounds  as  if the government is  on the job, although the   underline was a  bit  more cautious:  “Ardern’s  stern  words stop short of saying customers  ripped  off”.

So  what  was  the headmistress  on  about?   Surely she wasn’t   saying the  Reserve  Bank   (a  key regulatory agent in the banking sector)  needs a rev  up?

Or is it that KiwiBank  needs to  lift its game?

Possibly.  KiwiBank hasn’t been the  raging success  its founder, the  late Jim Anderton,    thought or hoped it would be.  

How about  the  other   NZ-owned  banks   like  TSB    or  Heartland?

There was no  mention  of  them  directly.

Could  the target have been  the  ANZ, ASB, BNZ, and Westpac (all Australian-owned and the heavyweights of the banking industry in this country), whose  combined profit  came to $4.9bn, after tax, in the year  to December  31, 2017?.

But only last week   the Deputy Prime Minister,  Winston Peters,  was citing  the  profit ANZ  made in  this country  as a   sign  of  the strength of  the   economy.

Does  the   coalition   government,  when it  talks  of “banks needing to lift  their game”,  think profits should be  even  bigger?

Point of Order  finds that a  bit of a stretch. and concludes that  Ardern  was  just  having a  whack   at the  banks  because  she  thinks  the  punters  hate  any  business  being successful  and  making a  decent  profit.

What triggered  it all  was  a   report  following a  four-month  review and costing around  $2m  by the   Financial  Markets Authority and the  Reserve  Bank  of  NZ   into the conduct  and culture of  11   banks   operating  in  NZ.

Why   these  institutions   needed  to  do a  review — isn’t  it  their  daily  job to  monitor  the activity of  financial  operators? — presumably  was to be seen to  be doing something  in the  wake of  the Royal Commission into Banking   across the  Tasman.

But  as   economist  Michael  Reddell   pointed out  in his  blog, the main finding  of the FMA   and the  RBNZ  was: “ … culture and conduct issues do not appear to be widespread in banks in New Zealand at this point in time”.

Despite that, the   NZ  Herald’s  business commentator  thought  it  was  a “a wake  up call”   for  the banks.

So  what are the banks being told they   have to  do?  Boards  must  give  “serious attention”   to how they oversee and  monitor  conduct  issues and  do so “urgently”.

Reserve  Bank  governor  Adrian  Orr  says  banks  “had a  responsibility”  to  ensure  customers  receive  products and  services  they understand.

Or,  as   somebody said a  long  time  ago, caveat emptor.

When  politicians  start  playing   politics   over the  country’s  major  financial  insititutions,  they  are  playing  with  fire.  The banks  are  pillars  on  which  the  foundations of the  economy  rest.  When any of them fall,  as    some  did  to precipitate the global financial  crisis, the  repercussions reverberate for decades.

Not  surprisingly, the  FMA   and the  Reserve  Bank  think   they  should have  more   powers  to  regulate  the banks.

What perhaps  should be an immediate  priority  is to apply  more  rigorously the core responsibilities which already have been assigned to them by law.

As  Michael Reddell  argued, developing a culture of doing excellently what Parliament asked them to do, of being open and accountable to citizens, and avoiding overreaching their mandate (relying on implicit threats) would be good to see from both the Reserve Bank and the FMA.

Back  to  Ardern:  she  said  the  government   would  “look hard”  at the industry  but   did not want to  nominate it for a  Commerce  Commission market  study.

Ah,  so  the  banks  unlike  those  petrol  resellers,  are   not  “fleecing”   their customers.

But, a  final   warning,  “Banks  should remember that it    is a privilege, not a right, to operate, and customer  needs  must  come  first”.

Just  don’t  expect  a  chocolate biscuit  when  the ATM   spits  out  your  cash.

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