PMNZ October Newsletter - Submission to the Select Committee on banking competition.
Welcome to our October 2024 newsletter. Here is a link to previous newsletters.
Submission to the banking select committee
We put in a submission to the Select Committee enquiry into banking competition and our submission focussed on three points. We suggest you read the full submission on our website to get the full response.
Point 1 Why has productive sector lending declined as a share of lending?
We said that the banking reforms of the 1980s and 90s were sold to the public as a better way to finance investment but the opposite happened. Money poured into housing and away from the productive sector where products and services were made and jobs created.
We showed that this was a feature of the system, not a bug. As governments tightened spending year after year to run surpluses, more of the money needed to support the economy had to come from households. Actively encouraged by decades of Reserve Bank loose monetary policy, it went on the mortgage.
Our message: fixing the unproductive lending problem requires the government to lead from the front.
Point 2 What barriers prevent competition?
We said New Zealand has one of the most concentrated and least competitive banking markets in the world—just four foreign-owned banks control 85% of all lending. Our banks are neither safer nor better because of this. They take a bigger slice of the economy while reducing services with small businesses and regions being the biggest losers.
Our message: we need more banks, not bigger banks to fix the banking system and direct more lending to small businesses and regions.
Point 3 Has the RBNZ’s focus on “financial stability” impeded the development of competitiveness?
We said yes. Prior to the banking reforms New Zealand had a diverse retail banking market where no institution or sector was dominant. Even if a bank had failed, none would have been big enough to bring the system down. The Reserve Bank took this sound and diverse retail banking market and turned it into an unsound and uncompetitive market in which four entrenched banks face little competition and are now too big to fail, effectively commanding a government guarantee.
Our message: The Reserve Bank will not fix this problem alone. We asked the Committee to recommend that a joint RBNZ/Commerce Commission group develop a new pro-competition regulatory framework for banking.
Approached the Infrastructure Commission.
The Infrastructure Commission’s July newsletter asked, “What’s the gap between the long-term infrastructure needs and planned investment and how do we address that gap?”
We obliged by providing them with details of the benefits of Direct Monetary Financing from the Reserve Bank.
Annual International Movement for Money Reform meeting
The International Movement for Money Reform (IMMR) annual meeting was held during September with 22 people on the Zoom call. I presented our report on progress in New Zealand and it was heartening to hear from other countries and to be part of a global movement for monetary reform.
Nga mihi
Don Richards
Most of us Pensioners can remember how ANZ and Westpac went about wiping out the regional Trust Banks around the Country. Regional Trust Banks were active in supporting small business and small holding farms, providing resilience to small communities and ensuring the money cycle rotated several times within communities before lodging back in banks as mortgage interest payments.
The other regional feature was the number of small credit unions and contributory mortgage schemes operated in the past, that due to regulation that much favored the banks, have now vanished and severely limited the small business owners choices so that small business activity is dictated by foreign bank lending policy. Gone too are the various Local Body Bonds which attracted local investment and where dividends inevitably ended up returning into smaller communities serving to extend local resilience and promote the money circulation.
I would ask since Councils are empowered to undertake regional commerce, Why does Not every Regional Council operate a standalone Regional Public Trust Bank, which might have as one of its priorities, the funding of local Regional Infrastructure, including public private partnerships in Sewer, Water and Electrical distribution, and waste disposal. Logically the Regional Councils might also have a pathway for local investors to participate with investment partners limited to NZ Citizens. Also to provide property based and life based insurance services. Why are these essential services providing a profit conduit to overseas investors when local investment might reap the benefit of an industrious, practical and prudent community.
Well done with the accurate analysis and soundly argued submission. Bruce Beetham said it back in 1980 - The current system rewards speculation in existing assets rather than investment in infrastructure projects that add value to the economy, or increased productivity. What's changed in 44 years? The situation has got worse, facilitated by the Lange Labour government's implementation of Thatcherism and Reaganomics. The Reserve Bank has to fulfill the tole that most of the public thinks it does, ie supply the nation's money to a strictly controlled banking sector. Until that happens nothing's going to change.