Sam Stubbs: Simplicity Founder on the potential changes to banks' capital requirements

A reassurance that banking won't be much riskier even if capital rules are changed.  

The Reserve Bank's put out two proposals to loosen capital requirements after the government called for it.  

One of them is reducing minimum capital requirement for deposit takers from $30 million to $5 million.  

Founder of KiwiSaver provider Simplicity, Sam Stubbs told Ryan Bridge there are other rules, so it won't make it much more hazardous.  

He says the Reserve Bank will still keep a close eye on any group calling themselves a bank. 

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Episode Transcript

Speaker 1 (00:00):
The arbian Z's giving capitals a second look. This is
for the banks, after pressure from the government looking at
easing the requirement so banks don't have to lock away
as much from emergencies. Could free up money for home loan,
small business lending, farmers. That sort of stuff could also
give smaller banks a shot at competing with the big players.
Sam Stubbs simplicity founded with me this morning, Sam, good morning.

Speaker 2 (00:20):
Get a Ryan. How are you making good?

Speaker 1 (00:22):
Thank you? Does this really make the system potentially make
the system riskier?

Speaker 2 (00:29):
Are in a very very small way. The Reserve Bank
will still maintain extremely close control over anyone who calls
themselves a bank and takes deposits. One of the interesting
things about banking, Ryan, is anyone can make a loan.
You don't have to be a bank to make a loan,
but you do have to be a bank to take
a deposit. And they've lowered the requirements. You've got to
quit out five million dollars, not thirty million dollars, but

(00:50):
that will be of capital, but that'll be very very
tightly monitored, and it will actually cost a lot more
than that to run some they caught a bank, so
at the margin years, but not really.

Speaker 1 (01:00):
So the current rules, well they look to be a
bit harsh when you compare them to our countries. We
like to compare ourselves to.

Speaker 2 (01:10):
The sort of I mean, we've got very safe banks,
but we've also got massively profitable banks. And you know,
I read these recommendations. To be honest with you, it
feels something like the Reserve Bank we're having their arm
twisted that they don't really want to do this, but
the politicians have been lobbied very effectively by the banks
into saying, look, you know, we need to have lower
cost of capital. And the history of banking in New

(01:32):
Zealand is as soon as banks say costs, they actually
take it straight to their profit. They don't give it
back to the customers. You know, you've seen that with
bank branches. For example, your mortgage didn't go down because
they were saving a whole lot of money closing closing
rural branches. So this is something the banks want, so
you have to be very suspicious of it. They lobbied
very heavily for this. You've got to ask themselves what's
their motivation. I doubt their motivation is going to be

(01:54):
lower mortgages and higher term deposits. I think this is
a way of them seeing how they another way seeing
their profits, and in fact, the Reserve back themselves said, look,
these recommendations we're making, or you're asking us to make,
might save people maybe six one hundreds to fourteen one
hundreds of one percent in their mortgage rates. So it's
going to make a very very small difference at the margin,

(02:15):
if at all. I personally think the banks will take
this to profit. You know, they've already had very high
capital requirements recently, and what have they done. You've seen
their profits go up, so we'll imagine what they'll do
if their cost of doing business goes down. Do you
really trust them to give that back to the consumer?
I don't. Good.

Speaker 1 (02:34):
Good point, Sam, Appreciate your time. Sam Stubbs, Simplicity Founder.
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