Jenee Tibshraeny: NZ Herald Wellington business editor on the IMF's annual report on New Zealand's economy

The International Monetary Fund is cautioning the Government against bending over backwards, deregulating banks in a bid to spur more competition in the sector.

Finance Minister Nicola Willis is getting advice on whether she should make the Reserve Bank of New Zealand (RBNZ) loosen the way it regulates banks.

The Commerce Commission has also suggested the rules could be changed to make it easier for small banks to compete with big ones.

NZ Herald Wellington business editor Jenee Tibshraeny explains why the IMF is issuing words of caution as these discussions take place.

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Episode Transcript

Speaker 1 (00:00):
Crayon Bridge.

Speaker 2 (00:01):
Now the International Monetary Fund, the IMF is today released
it's yearly report on the State of our economy, and
it's not too keen on the government deregulating banks to
spur more competition in the sector. Jane chip Trainee is
The Herald's Willington business editor. She's been breaking a looking
into this for USA Good Evening. Hey, Ryan, so why
are they worried about less regulation?

Speaker 1 (00:23):
Well, the IMF is basically just cautioning the government. It's saying, hey,
make sure that these rules that the Reserve Bank puts
in place that require banks to have strong balance sheets,
make sure that those rules are actually focused on the
main thing, which is maintaining financial stability. Don't you know.

(00:44):
It's not saying it quite so explicitly, but it's saying
in the IMFs was the primary objective of prudential regulation
should be to safeguard financial stability. So it's making this warning.
And the relevance of this is that Nikola Willis is
looking at whether she should override the way the Reserve
Bank regulates banks because she thinks that potentially if some

(01:07):
of these rules are watered down a bit, banks might
leand more freely, their interest rates might be a bit lower,
and big and small banks might be able to compete
more freely. So there's definitely a trade off here. On
the one hand, you've got, you know, making sure the
banks are super strong, they've got lots of capital. But
you know, on the other hand, it's like, well, are
we overdoing it? The IMEF is saying, make sure that

(01:29):
the main goal of the rules is actually to maintain
financial stability.

Speaker 2 (01:33):
Yeah, especially with a country like ours, where you know,
we're an earthquake away from it all being over. It's
funny you say they didn't say this explicitly. The IMF
doesn't say anything explicitly this report. It's so hard to read.
It's like you need a telescope, a dictionary in another language.

Speaker 1 (01:51):
Yeah, yeah, you know, it's like prudential regulation. You know,
it's not that radio friendly.

Speaker 2 (01:56):
What else did the IMEF have to say about the economy?

Speaker 1 (01:59):
Well also said that the Reserve Bank should be ready
to use it has another long word macro prudential tools,
that it should be ready to tighten those loan to
value ratio restrictions and it's debt to income restrictions if
low interest rates see the housing market take off, and
see banks do lots of risky lending. So those are

(02:22):
those rules that mean you need to have it that
you generally need a twenty percent deposit if you're an
owner occupier and you need to have enough income relative
to the size of the loan that you want. There
are those rules in place, and it's it's set a
warning that actually the Reserve Bank should be ready to
tighten those if necessary.

Speaker 2 (02:41):
Interesting, and now I noticed in that IMF report they
said year get year OCR back to neutral. In fact,
they said three point twenty five percent by mid year.
They reckon. But there's an economists warning that kause Adrian
Or has left the Reserve Bank that we might see
a slightly higher track because of his departure.

Speaker 1 (03:01):
Yes, now this is where it gets interesting with these
bank capital rules. Again, Adrian Or was a fierce defender
of these rules. So they're still being phased in. They'll
be fully phased in by twenty twenty eight. If what
the banks say is correct, then that mean interest rates
will be higher because of these rules. So if banks
need to hold more capital, that costs them, so they

(03:23):
pass that cost onto us. But if Nichola Willis comes
in and overrides the Reserve Bank or appoints a new
governor that is happy to loosen the rules. Then that
means interest rates could be a bit lower. So that means,
you know, banks might have charge us slightly less for
our mortgages. If that happens, and this is now taking

(03:43):
us five steps down the line. If that happens, interest
rates might end up being a bit lower than what
the Reserve Bank deems desirable to keep inflation in check.
So then it might mean that it might need to
lift the OCR a little bit more than might otherwise
be the case. I know I'm taking us like a
million steps down the road here, but but this being

(04:04):
z economists, Stephen Topless has said, well, if the if
the capital rules are watered down, that might mean that
o CR might need to be a little bit higher
to prevent the mortgage rates that that banks charge from
from falling too low. You know, if they fall too low,
that can stimulate the economy and that could be inflationary.
So that could mean that the o CR needs to

(04:25):
go up a bit. So I suppose the big takeaway here,
and it's all very complicated, but these capital rules are
worth are worth a lot. You know these the way
that banks are regulated, you know that has a really
big impact through the economy, and I think the IMF
is also warning we need we can't tinkle with these

(04:46):
things willingly. You know that there needs to be a
pretty you know, a good effort to make sure they
are well calibrated because the flow and effects are.

Speaker 2 (04:55):
Extensive, massive, and it's basically a battle between stability and
I yes, cost effectiveness too, isn't it. Janet, thank you
very much for that. There's always genative training with us
from the Herald. She's the Marlington Business Editor. For more
from Heather Duplessy Allen Drive, listen live to news talks.
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(05:16):
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