“Further fintech developments, already firmly in the pipeline for implementation in New Zealand, will accelerate the customer’s ability to move funds – making the role of both bank and regulator more difficult.”
From late May, banks will offer the ability to carry out transactions seven days a week - moving from the current five-day-a-week model.
Ford said large, static deposit bases - which have traditionally been an important source of cheap funding for the banks - may become more volatile if consumers take up fintech solutions which promote transparency, transferability and choice.
“While recent US experience has shown a ‘flight to quality’, it also demonstrates the increasing speed at which deposits can move.”
Within 24 hours, US$42 billion was withdrawn from Silicon Valley Bank. That compared to Washington Mutual, which saw US$16.7b withdrawn over 10 days in 2008 during the Global Financial Crisis.
Ford said he expected banks to focus on incorporating new technologies to encourage customers to stay loyal as they competed with new providers.
New Zealand is also in the process of bringing in a deposit insurance scheme and open banking. The deposit insurance scheme is designed to provide a guarantee for up to $100,000 in retail deposits for any deposit taker that collapses.
Ford said this would catch New Zealand up with other OECD countries, but may lead to large depositors splitting their money between banks and provide an opportunity for non-bank deposit takers.
But the Silicon Valley Bank collapse would have some lessons for New Zealand.
Ford said although SVB was not a “systemically important” bank, the US Government stepped in to immediately guarantee all deposits and put in place a lending facility to help minimise the risk to other banks.
“It will be interesting to see how the RBNZ reacts to this redefinition of moral hazard as we introduce deposit insurance across all deposit takers.
“The Deposit Takers Act would technically allow the Government to increase deposit insurance above its $100,000 cap for “financial stability” reasons (and levy the remaining banks afterwards to recover the cost).”
But whether the Reserve Bank would want to give any impression of a possible total Government guarantee was another story, he said.
Banks also faced challenges from the Central Bank Digital Currency being developed by the RBNZ and an increased focus on social licence in the rising interest rate environment.
But he believed the banks were well-suited to meet the changes.
“We know they are devoting considerable resources to trying to meet all of these points. In NZ, the banks are tightly regulated - they hold a lot of capital. Overall, it is a relatively small economy, which means they are held to account quite a lot.
“The challenge is in positioning themselves for the future, as well as responding to all the many changes that are going on at the moment.
“The banks are being pulled in a number of different directions to meet all the changing regulations ... coming through. But at the same time, they do need to be keeping an eye ahead to the future and what things like fintech are going to mean for them.
“Finding the right balance of financial regulation, market discipline and investor protection is a hard problem to solve. Unintended consequences – and complaints – arise regardless of approach. And where there are depositor/investor losses, litigation will follow.”
Ford said the ability to move money around more easily was good news for consumers, but he said there was also an element of cost that went with compliance and regulation, and to some degree, that would end up being passed on.
“We know there is a focus on customer experience, and we expect that to continue to increase over time to try to keep customers, keep depositors and try to maintain their positions.”
