One or more of the four Australian-own banks that command New Zealand’s banking sector can be relied on (or at least cajoled) to take on the role of a maverick, or so the Reserve Bank of New Zealand believes.
The recent draft report by the NZ Commerce Commission for its personal banking services market study featured several recommendations that the RBNZ ease back on a range of prudential measures.
In this response, the RBNZ is making plain it is not for turning.
“Our vision for the financial system is that it is inclusive, trusted, and resilient, while also being efficient and competitive. A competitive banking system is an essential part of this” the RBNZ state at the opening of their submission to ComCom.
However, “we disagree with some of the analysis and relative emphasis of some of the draft report’s recommendations” the RBNZ said.
“It is possible that efforts to grow smaller banks or new players to the current scale of the four Australian-owned banks could drive more competition and improved outcomes for consumers” the RBNZ said.
“However, the scale of the required subsidisation (such as weaker prudential regulation or access to capital on non-commercial terms) is not clear and it is not obvious that moving from a market of four to five large banks on its own would necessarily change the incentives and other factors that contribute to the oligopolistic outcomes described in the draft report.
“In our view, the final report should place more emphasis on recommendations that would promote more disruptive competition among all players, including the large banks, effectively incentivising each to be a ‘maverick’.
“This requires a holistic approach focused on promoting an ecosystem that enables disruption through innovation, rather than implicitly subsidising higher-risk or smaller banks.
“This ecosystem includes appropriately calibrated regulatory frameworks, but also more proactive policy settings that are supportive of competition.”
In its draft study released a month ago, the Commerce Commission pointed out that 20 years ago ASB Bank (owned by Commonwealth Bank) was perceived, at the time, by one of its peer banks to be a maverick.
The ComCom, in 2004, relied in part on ASB’s assertiveness against the rest of the NZ banking oligopoly to help justify ANZ New Zealand’s takeover of National Bank of New Zealand.
ASB has long abandoned its quest to grow market share and Kiwibank lacks the capital to fulfil any role as a maverick.
Having mentioned in the opening comments of its submission that some bank or other may emerge to take on the role of a maverick, the RBNZ did not consider this topic again.
The thrust of the RBNZ’s submission was to analyse and refute the Commerce Commission’s call for “the Reserve Bank to review its prudential capital settings to ensure they are competitively neutral and smaller players are better able to compete.”
The RBNZ also argued that differences in operating costs between small and large banks was a more material factor constraining small banks, rather than risk weights.
Given the recent and through review of capital requirements - which included consideration of competition - we do