Andrew Body: Financial Markets and Banking Expert on the Reserve Bank's changes to banks' capital holding requirements

Hopes a Reserve Bank move will translate to better prices for borrowers might be overly optimistic. 

It is changing the mix of capital banks are required to hold, aiming to reduce funding costs and freeing up around $5 billion in equity across the sector.  

It’s also targeting closing the gap between bigger and smaller banks, making the market more competitive. 

Financial Markets and Banking Expert Andrew Body told Heather du Plessis-Allan that the change might result in a couple more chicken dinners for your average borrower, but nothing substantial.  

He says the big deal here is competition, which will require political leadership like we’ve seen in housing, education, and health to solve. 

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Episode Transcript

Speaker 1 (00:00):
Now the Reserve Bank changed the rules that should bring
down mortgage lending rates. It's reduced the amount of capital
that retail banks need to hold for a rainy day.
This was originally set quite high by Adrian or Andrew
Body is a financial markets and banking expert and with
us AM I being overly optimistic expecting a drop in
mortgage lending rates, you.

Speaker 2 (00:17):
Are, Heather, this is the chicken dinner change. Really it
might mean a couple of chicken dinners, but your average
mortgage borrower and maybe one for your average depositor.

Speaker 1 (00:30):
Now, when we've been discussing this in the lead up
to this decision actually being taken, what we were told
by the retail banks is that in order to pay
the same as Australia, the capital requirements have to be
the same as Australia. Are we the same as Australia?

Speaker 2 (00:45):
Now?

Speaker 1 (00:45):
Are we still higher?

Speaker 3 (00:47):
No? We're still higher.

Speaker 2 (00:49):
I mean the capital review was a political move by
the Reserve Bank earlier this year when they tried to
distract the Finance and Expenditure Committee at its banking inquiry.
The Reserve Banks yesterday that it will reduce the bank
cost of funds by six spaces points, and we're still
a lot more conservative than countries like Australia that we

(01:10):
compare ourselves with.

Speaker 1 (01:12):
In your opinion, do we need to be more conservative?

Speaker 3 (01:16):
No?

Speaker 2 (01:18):
I think that the last twenty five years the Reserve
Bank has.

Speaker 3 (01:23):
Done a huge amount of damage to New Zealand.

Speaker 2 (01:27):
The cost of capital compared to Australia is increased by
about twenty percent, and the relative cost of running our
banks here is increased by a lot more. And that's
about the Reserve Bank overreaching. They've concentrated the banking sector
and set up a fortress wall around large incumbents. A

(01:49):
Big four consequence is a high cost of capital that
makes New Zealand uncompetitive, leads higher inflation, lower productivity and
reduce public services.

Speaker 1 (01:58):
So could we actually have afforded to at Australia would
that have been Okay?

Speaker 3 (02:03):
Well, we've got to do.

Speaker 2 (02:04):
We've got to match Australia and we've got to allow
competition in from Australia.

Speaker 3 (02:10):
The big deal here is ready competition.

Speaker 2 (02:14):
The Reserve Bank is not following its remit from the
Minister of Finance and ultimately.

Speaker 3 (02:21):
That's a political problem either.

Speaker 2 (02:23):
It needs political leadership like we've seen in housing, education, health,
to get us out of it.

Speaker 3 (02:29):
You know, we've got a problem here with the banks.
We've got a problem with the Reserve.

Speaker 2 (02:33):
Bank, and unless we deal with it, we're going to
we're not going to be able to afford the need
in hospital.

Speaker 1 (02:41):
Yeah, I hear ye, Andrew, thanks very much, appreciate your
take on that, Andrew Body, financial markets and banking experts.
If Nichola is looking for around for something that she
could actually do to help out with the banking situation,
this might be one of them. And on that subject, actually,
cheeky old bank, say B and Z has just announced
it's lifting its fixed her mortgage rates the longer end
so to year up twenty basis points three four five

(03:02):
year up thirty basis points. ASB has just announced it's
doing the same thing, eighteen months up twenty basis points,
two years up twenty six basis points, three four five
years up thirty basis points. So that's B and Z,
that's ASB and We's back and by my reckoning, and
you can tell me if I'm wrong. I think that
leaves only A and Z who hasn't done it yet.

Speaker 2 (03:20):
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