Andrew Body: Financial Expert on regulation being to blame for a lack of banking competition

A lack of competition in the banking sector is being blamed on poor regulation.  

Financial experts believe a fundamental change to the Reserve Bank and the Council of Financial Regulations is required. 

Andrew Body, one of the experts, told Mike Hosking the regulators have created a “moat” around the large banks in New Zealand. 

He says the capital requirements, the Reserve Bank’s outsourcing requirements and branch policy, as well as the conduct and disclosure regulation and costs of operating all favour the big banks.  

Body told Hosking that RBNZ Governor Adrian Orr has completely “overcooked” the regulation. 

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Episode Transcript

Speaker 1 (00:00):
Out of yesterday's interview with the Reserve Bank governor, it

(00:02):
came once again the question about the so called lack
of competition in the banking sector. Now, Andrew body has
been thinking about all of this and indeed submitting to
the government on the matter, because they're looking into competition
at the moment. As you well know, he's an investment
banker and a financial expert.

Speaker 2 (00:14):
He is with us.

Speaker 1 (00:14):
Andrew, very good morning to you.

Speaker 2 (00:16):
Good morning Mike.

Speaker 1 (00:17):
Simple stuff. First, is the a lack of competition and
does more players or do more players solve the issue?

Speaker 2 (00:24):
Yes to both questions.

Speaker 1 (00:26):
The barriers to entry, are they a problem?

Speaker 2 (00:30):
Yes, the regulators have managed to create a moat around
the large banks in New Zealand, and that's through capital requirements,
the outsourcing requirements for the Reserve Bank, the branch policy
of the Reserve Bank, the prediential, a big part in

(00:53):
the conduct and disclosure regulation. It all increases that the
costs of operating here and favors the big banks.

Speaker 1 (01:01):
So Adrian Orr is a conservative operator and he would
argue it's for safety. It's so that hunky players don't
come in and they fall over and everyone starts screaming.
Does he have an argument there or not?

Speaker 2 (01:11):
Really, no, he doesn't have an argument. He's completely overcooked
the regulation that Basil three is the response of the
Bank of International Settlements a Basil Committee to the GFC.
And in New Zealand, we've taken Basil three and we

(01:34):
put it on steroids, and the rest of the world, sorry,
the rest of the world, partecularly the United States with Trump,
people are questioning whether Basil three is necessary, let alone
what steroid ridden predancial regulation has done in New Zealand.

Speaker 1 (01:52):
When you put this forward to the government, do they
get it, do they understand it? And do they accept it?

Speaker 2 (02:00):
I mean, the government's a big beast, Mike. You know,
you've got the administrative state there in the fall of
the regulators. You've got the advisors to to ministers, You've
got ministers. I think that the politicians actually get it.
I think that there is a natural response to the
regulators to say, you know, not a problem, let's move

(02:21):
on quickly. And the government's advisors sort of are missing
an action.

Speaker 1 (02:29):
Real How much of this is Adrian or versus any governor?

Speaker 2 (02:35):
Well, who knows. That's a good question. But who knows?
I guess I'm focused on what needs to change, and
I think I think that you know, the Minister of
Finance probably understands completely and she's focused on on change.
I expect it's just a question of how much and when.

Speaker 1 (02:56):
Maybe if she does what you would like her to
do and what she seemingly argues she wants to do,
and they pull the pull the trigger tomorrow, do banks
flood to this country or are we not attractive enough
or big enough?

Speaker 2 (03:12):
The margins suggest that there are excess profits being made here.
You know, I'm a big support of the banks. I
think the banks have done a great job. I think
the people running the banks are very confident people. But
they're playing with the decker cards that was issued to
them and they're making They've worked out how to do
that really well, and they're making excess profits. I think

(03:33):
they've really lost that argument, certainly in the public domain
and I think also in the technical technical domain, and
they need to move on from that position.

Speaker 1 (03:42):
Yeah, confident or not, hopeful or not.

Speaker 2 (03:45):
I'm always hopeful, make confident. I guess we just need
to watch what the politicians are doing really carefully and
encourage them to be brave.

Speaker 1 (03:56):
Go on, you well, said, and nice talk to you.
Appreciate very much, Andrew. So here's another one who is,
and there's a lot of them, believe me. And this
is about banking specifically, but this is a more general
argument that are getting in the ear of the government
at the moment and going basically dog it, get in
there and blow some stuff up.

Speaker 2 (04:15):
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