Claire Matthews: Massey University banking expert on whether the Reserve Bank's capital requirements for banks should be changed

A careful balancing act on how far banks should have to go to prepare for a rainy day. 

Parliament's Finance Select Committee is currently seeking feedback on whether the Reserve Bank's capital requirements for banks should be changed. 

The current rules are stringent and costly. 

Massey University banking expert Claire Matthews told Mike Hosking we also can't go too far the other way. 

She says if a bank fails, and there isn't enough money to pay people out, that will have a huge impact on the whole economy. 

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Episode Transcript

Speaker 1 (00:00):
And so Westpac's wide into the capital settings debate. In

(00:02):
simple terms, Adrian All required banks to put aside very
large amounts of money for a rainy day. The retail
banks and the finance minister argue it's more than they
need and by doing that it costs a lot more
to do business in this country anyway, Massive university banking
expert Claire Matthews back with us clear, good morning more Ndomike,
this has a feel of it sort of being sorted
out by itself. I mean, Nikola Willis seems to be
aligned with the retail banks. The retail banks will agree

(00:24):
with each other. Adrian All has gone as this coming
to an end.

Speaker 2 (00:26):
Ish well, I guess it just depends who the new
governor is and whether they share that same view. One
of the concerns I think there is is it seems
really logical, based on the way the connotations going that
capital level should reduce. And there is certainly an argument
that Adrian or in terms of the capital level that

(00:47):
he put in it was potentially too high. But that
doesn't necessarily mean we should go back to exactly what
they were, and that maybe it was a somewhere in
between that we need to end up, and there needs
to be that careful analysis. I got to remember that
capital is there for a purpose. It's not just there
because it looks good. It's there to make the bank safer,

(01:08):
and we've got to make sure that they've got.

Speaker 1 (01:09):
The right image give. But it's like insuring yourself. Do
you ensure yourself for a million dollars or fifty million dollars?
And that's what it boils down to, wasn't it.

Speaker 2 (01:16):
Well, yes, it's yes and no. We've got to remember
that when you're talking about the banks, you're talking about
everybody's money. And if a bank fails and there's not
enough money to pay you run out, that would have
a huge impact on individuals personally, but also for the economy.
So we do need to be sure that the banks
have got enough capital to make sure that they are
able to operate effectively.

Speaker 1 (01:36):
My argument has always been, and I'm as simple ton
I know, but nevertheless, we've seen the GFC, we've seen COVID,
and we've seen the banks and they literally bathe in money.
There's no chance they're going to fall over.

Speaker 2 (01:48):
Oh that's a very dangerous thought to have banks. We've
been fortunate in New Zellen that we've not had a
bank fail for some time, But we actually have to
go back to nineteen the early nineteen nineties when the
Bank of New Zealand have significant problems and did have
to effectively be bayer out. So it's not that long ago.
And if you look at the US banks have failed

(02:08):
more recently. Banks do fail, and just because they haven't
doesn't mean they're not going through the year.

Speaker 1 (02:15):
What I am interested in at the moment is Nichola
willis sniffing around as Finance minister. Can she do what
she seems to want to do while still allowing the
RB to remain independent?

Speaker 2 (02:27):
But it's a really good question. Effectively, she can't give
any official ruling. She can't say this is what you
must do. But obviously she's got the ability to have
a significant input into the appointment of the new governor.
And is she going to recommend somebody who takes a
significantly different view from what she and the government are

(02:48):
looking at? So indirectly, yes, she's likely to get what
she wants.

Speaker 1 (02:52):
Good insight, Clear, appreciate your time as always Clear Matthew's
Massy University Banking expert.

Speaker 2 (02:56):
For more from the Mic Asking Breakfast.

Speaker 1 (02:58):
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